Brittleness (January 29, 2007)
Some time ago our U.K. Correspondent sent in some comments on the "brittleness" and resilience of systems--such as economies. This is a "systems analysis" view of complex systems, and as such it can be profitably applied to everything from the immune system to the electrical grid to the stock market. Here is his brief commentary: (emphasis added)
Moving the analogy to economics I would ask: Is it better to have an economy that degrades and rebounds gracefully under stress or one that bears heavy loads but which fails dramatically when it hits the limits? The first is inherently robust but exhibits many variations in state. The second shows much more stability - but offers fewer indicators of the stresses the system is under.Though I am still learning about such analytic tools, it seems that many of the complex systems we rely on are also extremely brittle in the sense that they depend on a handful of chokepoints.
And so on. The idea behind hubs and ports and highly consolidated industries (there are only two manufacturers of large commercial aircraft in the entire world, for instance) is that the resulting economy of scale will be efficient. But as our U.K. Correspondent points out, that consolidation carries a cost which is only visible when the brittleness of such concentration becomes glaringly apparent.
To take another disturbing example: bird flu (H5N1) has killed 150 million birds globally. This virus somehow overcomes birds' normally robust immune system. Research suggests that the global Flu Pandemic of 1918 which killed millions of humans was a bird virus which "jumped" to human hosts. The immune response to that virus caused massive congestion in the lungs, causing the human host to suffocate. In effect, the normally resilent human immune system was rendered brittle by this terrible microbe.
The global financial markets, we are constantly reassured, are actually made more resilient by the instantaneous flow of capital across borders and by the proliferation of derivatives. But what if the opposite is true, and the global financial markets have been pushed by an unprecedented tide of derivatives to the edge of chaos? More on that later.
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copyright © 2007 Charles Hugh Smith. All rights reserved in all media.
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