Life Imitating Art…

In the scramble to figure out what went wrong with our economies and our markets, there are some leading candidates emerging: greed, naivety, self-dealing and corruption, and a lack of oversight, to name a few.  But while each of these phenomena surely played their roles, it seems equally sure that there was something(s) pretty fundamentally– structurally– awry.  Herewith, a quick consideration of two contenders… one of them,  your correspondent’s own nominee.

Last weekend, over on his Atlantic blog, Jim Fallows posted on The John Boyd Conference.  He quotes the conference organizer on one of this year’s key topics:

The search for efficiency and the urge to consume has set us all up like a row of dominoes – there is no buffer, no resiliency. As one problem rises it causes another. As one solution is tried it drives another problem. We all pull back and the consumer economy stalls…

Jim continues:

This is very close to what I was trying to explain three and a half years ago in my “Countdown to a Meltdown” imagined-history article in the Atlantic. The way that everything really is connected — I recently saw a school in southern China that will be in trouble because its donors are losing money through the Madoff fraud in New York  — and that no one has “any buffer, any resiliency” is something we’ve known in theory but are only now comprehending in its daily, cascading reality. It’s worth looking at the summary for similarly uplifting thoughts.

Then today, Jim followed up:

The whole question of what today’s economic seize-up does to comfortable, accepted economic creeds — from management theory, as above; to the pluses and minuses of full globalization; to the role of regulators; to theories of trade — will be with us for many years. I do not remember a time when so many ideas seemed to be pressed so hard by fast-breaking events. Probably the last time it happened quite this way was in the 1930s.

I am enough of an optimist to think that the process of working out new ideas won’t be as protracted as that last time, and that it need not end in world war.

FWIW, I’m in complete agreement… no surprise, since the holy grail for a scenario planner is robustness– readiness for what(ever) uncertainty may bring.  More specifically, I’ve felt similarly about “efficiency” for some years, and certainly agree about the brittleness of a just-in-time supply chain (e.g., Kyoto’s i kanban (just-in-time) economy + earthquake = instant shortages of almost everything, including life-and-death necessities, persisting until the the [whole] supply chain is materially fixed)…  which is simply to agree that we overestimate the utility of efficiency (and underestimate the need for effectiveness and robustness) at our peril…

But (again, FWIW), while that phenomenon does seem to haunt our current troubles (and will, as Jim suggests, need to be rethought– at least I pray so), it doesn’t seem to me the only– even the main– culprit.  The (vaguely-related but separate) quest for liquidity that’s animated the global economy for the last few decades– the urge to quantify and trade more and more things/phenomena, to make them fungible, in more and more ways, and more broadly and more and more quickly– is higher on my list.

That urge has sped the economy along a developmental path like the one that European art traveled in the 17th and 18th centuries: through the Baroque to the Rococo, piling complication upon variation, until (as we saw) the elaboration overwhelmed– too often, lost any meaningful connection with– the underlying “figures” it was meant to enhance… and the composition became a confused mess.

The Rococo Basilica at Ottobeuren, in Bavaria

The Baroque and Rococo in the arts were supplanted by Neoclassicism– in architecture, for example, by the powerful grace of Palladian principles.

The Neoclassical Somerset House, in London

As Warren Buffet famously pointed out back in his 2003 dissing of derivatives, complexity is not a virtue.  Here’s hoping that the rethink Jim is urging (and for which we’re all yearning)– the reconsideration of the approaches with which and the principles on which we build and manage the economy– leads in the same kind of way toward simplification and elegance…  toward a Neoclassical Economics and Finance.