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Re: Financial crisis [was bye(?)]

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Russ Abbott

Re: Financial crisis [was bye(?)]

So let's talk about the financial state of the world for a while. It certainly is worth of a complex systems discussion list.

Here's my basic analysis. For the past 2+ decades we have been engaged in a self-inflicted Ponzi scheme -- during more or less the same period in which Madoff was doing the same thing but to other people. We (the entire world) did it to ourselves. We recently reached the point where it became clear that it really is a Ponzi scheme and that the money we all thought was there isn't. That's actually not a particularly complex systems issue. It's pretty straightforward. Lots and lots of people have a lot less money than they thought they did. (See this nice piece about bubbles.)

The question is: now what?

One of the interesting things about a financial crisis is that nothing is actually destroyed. No manufacturing plants are damaged. No power plants are destroyed. Nothing is bombed. The world's farm land has not been poisoned. Nothing physically has changed. It's just that a lot of people now know that they have a lot less money than they thought.

One thing that's happening is that people are a lot more careful about spending money. That ripples through the economy putting people out of work, which causes even less money to be spent, etc.

It would seem that it should be possible to achieve a new stable state. But no one seems to know what that state will look like or what can and should be done for people who are suffering during the transition. It's also not clear whether the monetary and fiscal policies are helping us get there.

So it seems to me that the basic questions are: what are the possible new stable states and how can we get there with the least pain?

P.S. By a stable state I don't mean a government-run economy but one that is in relative equilibrium -- but obviously not complete equilibrium or there would be no evolutionary progress.

-- Russ

On Fri, Jan 9, 2009 at 6:21 PM, Phil Henshaw <[hidden email]> wrote:

There is much further to fall, and I think it's likely the Obama plan will
aggravate the failure of the system and push it over the next edge. It will
certainly not relieve it of strain and allow it to heal.

The Obama plan is designed by the same theory that caused the collapse, and
intended to pump up the process of harvesting multiplying returns from our
diminishing, dangerously unstable, and increasingly unresponsive set of
physical resources. If we pull out all stops to continue on that path as
intended it will probably push the system to a significantly greater failure
that may be relatively permanent.

The only thing that will work is for the people who have financial claims to
be paid more than the physical system was able to produce to rescind those
claims, i.e. come to a realization that having taken too much money out of
the system enough debts need to be forgiven or enough money put back as
needed to relieve the system of unachievable obligations to them.

Phil Henshaw
NY NY www.synapse9.com

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

Steve Smith

Re: Financial crisis [was bye(?)]

Russ -

Well said.

A friend of mine once asked the following question:

If you were building a house, would you stop just because you ran out of "inches"?

The analogy is that $$ are simply units of measurement for work or useful assets.   Do you cease to do the (same) work or (use) the assets effectively just because the units you used to measure them changed in some way?

Rumor has it that the depression ended pretty abruptly as the US geared up (on credit to ourselves?) to provide manufacturing/hard resources to the Allies in Europe to fight the Germans.   If we thought of $$ as hard assets (conserved quantities) themselves, then the "competition" for "scarce resources" from Europe should have somehow *crashed* us even harder... but instead it invigorated us.

I'm obviously/certainly not advocating (yet) more war... the"New Deal" and "WPA" and "CCC" and the like had already created an "artificial demand", when coupled with "minting more 'inches'" was helping...

I can't comment specifically on "Obama's Plan" (I'm just not tracking it closely) but in principle, a re-organization and re-motivation of our collective efforts could be a seriously positive thing to do about now.

Refactoring our economy/society is both scary and maybe necessary (or inevitable)?   Are we on the verge of a Punctuation Mark in the ever-famed Punctuated Equilibrium? Or is there a way for the system to "re-organize" itself to absorb/dissipate the internal stresses without cataclysmic change?

- Steve

So let's talk about the financial state of the world for a while. It certainly is worth of a complex systems discussion list.

Here's my basic analysis. For the past 2+ decades we have been engaged in a self-inflicted Ponzi scheme -- during more or less the same period in which Madoff was doing the same thing but to other people. We (the entire world) did it to ourselves. We recently reached the point where it became clear that it really is a Ponzi scheme and that the money we all thought was there isn't. That's actually not a particularly complex systems issue. It's pretty straightforward. Lots and lots of people have a lot less money than they thought they did. (See this nice piece about bubbles.)

The question is: now what?

One of the interesting things about a financial crisis is that nothing is actually destroyed. No manufacturing plants are damaged. No power plants are destroyed. Nothing is bombed. The world's farm land has not been poisoned. Nothing physically has changed. It's just that a lot of people now know that they have a lot less money than they thought.

One thing that's happening is that people are a lot more careful about spending money. That ripples through the economy putting people out of work, which causes even less money to be spent, etc.

It would seem that it should be possible to achieve a new stable state. But no one seems to know what that state will look like or what can and should be done for people who are suffering during the transition. It's also not clear whether the monetary and fiscal policies are helping us get there.

So it seems to me that the basic questions are: what are the possible new stable states and how can we get there with the least pain?

P.S. By a stable state I don't mean a government-run economy but one that is in relative equilibrium -- but obviously not complete equilibrium or there would be no evolutionary progress.

-- Russ

On Fri, Jan 9, 2009 at 6:21 PM, Phil Henshaw <[hidden email]> wrote:

There is much further to fall, and I think it's likely the Obama plan will
aggravate the failure of the system and push it over the next edge. It will
certainly not relieve it of strain and allow it to heal.

The Obama plan is designed by the same theory that caused the collapse, and
intended to pump up the process of harvesting multiplying returns from our
diminishing, dangerously unstable, and increasingly unresponsive set of
physical resources. If we pull out all stops to continue on that path as
intended it will probably push the system to a significantly greater failure
that may be relatively permanent.

The only thing that will work is for the people who have financial claims to
be paid more than the physical system was able to produce to rescind those
claims, i.e. come to a realization that having taken too much money out of
the system enough debts need to be forgiven or enough money put back as
needed to relieve the system of unachievable obligations to them.

Phil Henshaw
NY NY www.synapse9.com

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org
============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

John Kennison

Re: Financial crisis [was bye(?)]

I am reminded of some thoughts I had after reading a response in an advice column. A husband wrote that when he and his wife disagreed about something, he would often graciously do along with her wishes with the expectation that the next time they disagreed it would be understood that he had earned “brownie points” for having been so considerate and therefore his wife would not press her case too vigorously. But unfortunately his wife didn’t share that understanding. The columnist suggested that they institute a system of brownie points. When they disagreed, the husband might say, “I will go along with your wishes if you grant me two brownie points”. The wife would either agree and 2 brownie points would be formally added to the husband’s account or the wife might say, “Two brownie points is too much” in which case the husband might offer to trade his acquiescence for one brownie point or to offer his wife two brownie points in exchange for her acquiescence. My first reaction was that the idea was brilliant. The spouse who was most desirous of winning would bid the most brownie points so each of them would get their way on those issues that mattered most to them. And on those issues that seemed equally important to them, the system would force them to trade wins on some issue for losses on others. But then I noticed some annoying practical problems that the advice columnist had not addressed. Suppose it was clear that an issue of very high importance to both of them was looming. Would it mean that whoever had the most brownie points in the bank would be able to win the big issue? In that case, negotiations over relatively minor points that arose before the big issue, might see both parties willing to acquiesce in exchange for points that could tip the big issue their way. Maybe the spouses could be allowed to borrow brownie points. This wouldn’t necessitate establishing a brownie point lending institution, but simply allowing one to have a negative accumulation of points. But then there would have to be a control of some sort otherwise one of the spouses could simply outbid the other spouse on each issue, thereby getting his or her way each time. The other spouse might have leave an estate worth millions of brownie points but what good would that be?

I have two questions: (1) Has anyone created a workable mathematical model that would allow spouses to solve political issues by using brownie points? (2) If the brownie point problem is fundamentally unsolvable, is the same true of the use of money?

________________________________________
From: [hidden email] [[hidden email]] On Behalf Of Steve Smith [[hidden email]]
Sent: Saturday, January 10, 2009 12:26 AM
To: The Friday Morning Applied Complexity Coffee Group
Subject: Re: [FRIAM] Financial crisis [was bye(?)]

Russ -

Well said.

A friend of mine once asked the following question:

If you were building a house, would you stop just because you ran out of "inches"?

The analogy is that $$ are simply units of measurement for work or useful assets. Do you cease to do the (same) work or (use) the assets effectively just because the units you used to measure them changed in some way?

Rumor has it that the depression ended pretty abruptly as the US geared up (on credit to ourselves?) to provide manufacturing/hard resources to the Allies in Europe to fight the Germans. If we thought of $$ as hard assets (conserved quantities) themselves, then the "competition" for "scarce resources" from Europe should have somehow *crashed* us even harder... but instead it invigorated us.

I'm obviously/certainly not advocating (yet) more war... the"New Deal" and "WPA" and "CCC" and the like had already created an "artificial demand", when coupled with "minting more 'inches'" was helping...

I can't comment specifically on "Obama's Plan" (I'm just not tracking it closely) but in principle, a re-organization and re-motivation of our collective efforts could be a seriously positive thing to do about now.

Refactoring our economy/society is both scary and maybe necessary (or inevitable)? Are we on the verge of a Punctuation Mark in the ever-famed Punctuated Equilibrium? Or is there a way for the system to "re-organize" itself to absorb/dissipate the internal stresses without cataclysmic change?

- Steve

So let's talk about the financial state of the world for a while. It certainly is worth of a complex systems discussion list.

Here's my basic analysis. For the past 2+ decades we have been engaged in a self-inflicted Ponzi scheme -- during more or less the same period in which Madoff was doing the same thing but to other people. We (the entire world) did it to ourselves. We recently reached the point where it became clear that it really is a Ponzi scheme and that the money we all thought was there isn't. That's actually not a particularly complex systems issue. It's pretty straightforward. Lots and lots of people have a lot less money than they thought they did. (See this nice piece<http://www.theatlantic.com/doc/200812/financial-bubbles> about bubbles.)

The question is: now what?

One of the interesting things about a financial crisis is that nothing is actually destroyed. No manufacturing plants are damaged. No power plants are destroyed. Nothing is bombed. The world's farm land has not been poisoned. Nothing physically has changed. It's just that a lot of people now know that they have a lot less money than they thought.

One thing that's happening is that people are a lot more careful about spending money. That ripples through the economy putting people out of work, which causes even less money to be spent, etc.

It would seem that it should be possible to achieve a new stable state. But no one seems to know what that state will look like or what can and should be done for people who are suffering during the transition. It's also not clear whether the monetary and fiscal policies are helping us get there.

So it seems to me that the basic questions are: what are the possible new stable states and how can we get there with the least pain?

P.S. By a stable state I don't mean a government-run economy but one that is in relative equilibrium -- but obviously not complete equilibrium or there would be no evolutionary progress.

-- Russ

On Fri, Jan 9, 2009 at 6:21 PM, Phil Henshaw <[hidden email]<mailto:[hidden email]>> wrote:
There is much further to fall, and I think it's likely the Obama plan will
aggravate the failure of the system and push it over the next edge. It will
certainly not relieve it of strain and allow it to heal.

The Obama plan is designed by the same theory that caused the collapse, and
intended to pump up the process of harvesting multiplying returns from our
diminishing, dangerously unstable, and increasingly unresponsive set of
physical resources. If we pull out all stops to continue on that path as
intended it will probably push the system to a significantly greater failure
that may be relatively permanent.

The only thing that will work is for the people who have financial claims to
be paid more than the physical system was able to produce to rescind those
claims, i.e. come to a realization that having taken too much money out of
the system enough debts need to be forgiven or enough money put back as
needed to relieve the system of unachievable obligations to them.

Phil Henshaw
NY NY www.synapse9.com<http://www.synapse9.com>

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

________________________________

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

Robert Holmes

Re: Financial crisis [was bye(?)]

Nope - see http://www.xkcd.org/523/

Robert

On Mon, Jan 12, 2009 at 9:56 AM, John Kennison <[hidden email]> wrote:

<snip>
I have two questions: (1) Has anyone created a workable mathematical model that would allow spouses to solve political issues by using brownie points? (2) If the brownie point problem is fundamentally unsolvable, is the same true of the use of money?

_____

Douglas Roberts-2

Re: Financial crisis [was bye(?)]

Robert:

That was *the* perfect response to the question which was asked. In fact, I've got a funny feeling that 90+% of the questions raised on the FRIAM list also have a ready answer somewhere in the xkcd archives.

--Doug

On Mon, Jan 12, 2009 at 10:36 AM, Robert Holmes <[hidden email]> wrote:

Nope - see http://www.xkcd.org/523/

Robert

On Mon, Jan 12, 2009 at 9:56 AM, John Kennison <[hidden email]> wrote:

<snip>

I have two questions: (1) Has anyone created a workable mathematical model that would allow spouses to solve political issues by using brownie points? (2) If the brownie point problem is fundamentally unsolvable, is the same true of the use of money?

_____

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

John Kennison

Re: Financial crisis [was bye(?)]

I like the cartoon and agree with its message about mathematical analysis of the dynamics of marriage. Is there a similar cartoon (or message) for those who draw graphs about the economy?

________________________________________
From: [hidden email] [[hidden email]] On Behalf Of Douglas Roberts [[hidden email]]
Sent: Monday, January 12, 2009 12:46 PM
To: The Friday Morning Applied Complexity Coffee Group
Subject: Re: [FRIAM] Financial crisis [was bye(?)]

Robert:

That was *the* perfect response to the question which was asked. In fact, I've got a funny feeling that 90+% of the questions raised on the FRIAM list also have a ready answer somewhere in the xkcd archives.

--Doug

On Mon, Jan 12, 2009 at 10:36 AM, Robert Holmes <[hidden email]<mailto:[hidden email]>> wrote:
Nope - see http://www.xkcd.org/523/

Robert

On Mon, Jan 12, 2009 at 9:56 AM, John Kennison <[hidden email]<mailto:[hidden email]>> wrote:

<snip>

I have two questions: (1) Has anyone created a workable mathematical model that would allow spouses to solve political issues by using brownie points? (2) If the brownie point problem is fundamentally unsolvable, is the same true of the use of money?

_____

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

Russell Gonnering

Test

In reply to this post by Steve Smith

Have not received any messages. Test to see if bb still up and running.

Russell S. Gonnering, MD, FACS, MMM, CPHQ

[hidden email]

Douglas Roberts-2

Re: Test

It's running. We're just quietly gearing up for a week's worth of inauguration parties, here in Santa Fe.

http://tinstarmusic.blogspot.com/2009/01/inauguration-party-week.html

On Mon, Jan 19, 2009 at 5:29 PM, Russell Gonnering <[hidden email]> wrote:

Have not received any messages. Test to see if bb still up and running.

Russell S. Gonnering, MD, FACS, MMM, CPHQ

[hidden email]

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

Marcus G. Daniels

Re: Test

Douglas Roberts wrote:
> We're just quietly gearing up for a week's worth of inauguration
> parties, here in Santa Fe.
>
> http://tinstarmusic.blogspot.com/2009/01/inauguration-party-week.html
Head out a bit earlier and first hit this talk at the Santa Fe Complex..

http://www.lanl.gov/news/index.php/fuseaction/home.story/story_id/15497

Marcus

============================================================
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org