The Certainty of Change

The certainty of change is the essence of a branch of mathematics called chaos theory. The clockwork universe as a concept died a long time ago, yet the mankind persists in hanging on to the allusion of control instead of embracing what appears to be the very fabric of reality, chaos. Clearly this need to believe in an illusion is an emotional and psychological need that allows us to cope with uncertainty. It does not help at all that even in chaos there are pools of stability that when observed render the belief that the overall system is stable rather than chaotic.

Economic focus is now on reacting to a system that we largely acknowledge cannot be controlled. The belief that a market economy is far too complex to control is a correct one, yet we persist in trying to control the natural outcome that the market economy selects as a consequence of its initial boundary conditions and state. In other words, we talk a cheap game and of course our actions reveal our true allegiance to maintaining the illusion of control.

Our focus should be as it is with the weather. We know on any scale that the weather is far too complex to control in any meaningful way. We also know that it is impossible for us to mitigate a result of a particular weather system that is we find detrimental to our particular needs or desires. What we have done is we have adapted to weather and have developed systems and coping strategies that allow us to survive the effects of chaos in weather systems. We have focused on forecasting where we can see the potential for change coming. This allows us to prepare and build strategies to fortify ourselves against possible damage.

The same principles could be applied to economics. We once and for all need to abandon the idea that an economy must and can be controlled. No central planning, no Federal Reserve controlling growth. We also need to acknowledge that attempting to alter the natural outcome of the economy is simply another form of control that introduces even more complexity and chaos into an already chaotic system. What we believe to be  mitigating measures may temporarily constrain a breakdown of stability, but they create their own secondary, tertiary, and nth order effects that in no way can be predicted. We need to focus on less on control and more on forecasting that will allow us to predict when change is about to occur or when the conditions are ripe.

With this acknowledgement that we are going to focus on adaptation rather than control, we can actually choose to act in a manner that introduces stabilizing factors to an inherently unstable system. We can take measures to mitigate risk when we see risk amassing. If the economic system is sufficiently free from control, and if enough people move in concert, a dampening effect may created that sufficiently alters the system and prevents dramatic breaks from stability to instability. What you end up with is mini corrections and perturbations rather than huge corrections that completely alter the state of system.

Our economic managers will not let the system seek a natural state of stability. To reach that state, the system must purge itself of instability that has both been injected into it by central planners and that which exists naturally as a consequence of boundary conditions. Our economic managers are at the point now where constant manipulation is required to simply prevent disaster. The outcome is certain however. What remains to be answered is how we get there. A crash is coming. Do our controllers play their cards until the very end and effect a hyperinflationary result? Or do they they simply throw in the towel and let the deflationary collapse happen?

History says mankind is stubborn. I think that is all the answer I have for you today. Here is a really nice documentary on the mathematics of change with an intro by Jesse at Jesse’s Café Américain:

High Anxieties: The Mathematics of Chaos


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