Certainty, Complex Systems, and Unintended Consequences
When it comes to complex systems and unintended consequences, the key phrase is "be careful what you wish for."
A lot of people are remarkably certain that their understanding of how systems will respond in the future is correct. Alan Greenspan was certain there was no housing bubble in 2007, for example (or he did a great job acting certain). There is no shortage of people who are certain the U.S. dollar is doomed to collapse, but only after losing the reserve currency status.
Other people are certain China can launch a gold-backed currency that will replace the dollar as the world's reserve currency.
Some are certain the U.S. stock market is going to crash this year, while others are equally certain that stocks will continue lofting higher on central bank tailwinds.
Being wrong about the way systems responded in the past doesn't seem to deter people from being certain about the future. Those who were certain there was no bubble in 2007-8 were wrong, and those (myself included) who saw the can being kicked down the road were wrong in not anticipating that global stocks would not just recover their pre-crash heights but go on to new nominal highs, based on the excellence of the can-kicking skills of central states and banks.
Complex systems don't act in the linear way our minds tend to work. Humans are built to distill a chaotic array of sensory data into a narrative that simplifies decision-making and risk assessment (for example, "us good, them bad"). We prefer our chains of causality to have a few big links we can follow without difficulty. We find systems with multitudes of ambiguous inputs tiresome and so we invent ideologies ("us good, them bad") and very occasionally, elegant mathematical statements that reduce the chaos of data to predictable causal chains.
We are built to cling very stubbornly to certainty once we reach a conclusion, because ambiguity and having to constantly change our assessments of inputs and causality are big drains on our energy and mental capabilities. It's "cheaper" in terms of energy and anxiety to just stick with the story we grew up with or the one we chose after a bit of looking at what our mates think/believe/claim is true.
Certainty has another advantage: it's more persuasive than hedged hesitancy. Leadership tends to fall to those without hesitation, the bold ones with the powerful rhetoric of certainty, confidence and optimism. We don't want the narrative muddled with hedges--maybe "them" are not necessarily evil, dangerous enemies, etc.--and so we shout down, ridicule or ignore those who are circumspect about how systems will respond in the future.
Politicians have of course mastered the art of distilling narratives to the desired state of certainty, confidence and optimism, and in repeating the story often enough that mere repetition lends it credence.
The problem is simplistic, linear narratives don't map complex systems. All sorts of unexpected and unintended things happen in complex systems when you change the inputs and try to control the output.
We have a name for systems where the inputs are all tightly controlled to yield a simplistic desired output: they're called monocultures, and monocultures are exquisitely vulnerable to unintended consequences and "leaks" from the outside world. Though monocultures look robust, they are actually quite fragile, because the natural feedbacks and redundancies of natural systems have been eradicated to make the desired yield the primary output.
This is why politicians cannot deal with either complex systems or unintended consequences. As a result, they have to act as if complex systems and unintended consequences don't exist.
Thus Federal Reserve Chair Janet Yellen sticks to the simplistic narrative that the economy is flourishing and so the Fed can "taper" its money-creation/asset-buying operation, but she is careful not to mention the unintended consequences of the Fed's monoculture: to mention just one, that since the Federal deficits are shrinking rapidly, if the Fed didn't reduce its $1 trillion a year program, it would soon end up owning the entire Treasury market.
Since there could be unintended consequences of that, the Fed chair doesn't mention the topic.
The narrative that printing money destroys the currency being printed is appealing on many levels. It makes sense, and history is replete with examples of just this narrative.
But the system isn't quite as linear as we might wish. If $10 trillion in dollar-denominated value is wiped out in write-downs triggered by marking phantom assets to market, and $1 trillion is printed, the system still lost $9 trillion. As correspondent David C. observed:
Destruction of dollar *value* means that surviving dollars become more *valuable.*
If stocks, bond, real estate, Beanie Babies, etc. decline in VALUE, it means they are worth fewer dollars-per-unit. This means that dollars are, by definition, rising in value per unit, and this absolutely confounds those who believe the next big thing is inflation/hyperinflation.
They simply can't see that if people become poorer (as their stocks, bonds, homes, etc. fall in value), and especially if the banks begin to fail in a wave too large to bail and take deposits into monetary nothingness, the most likely outcome is that those who retain access to dollars will see their dollars rises dramatically in purchasing power, the exact opposite of the last 82 years of experience.
I've encountered few people who can accept this paradoxical analysis.
Our fully fiat-money system enabled the embrace of illusions so pervasive that people simply can't see how much "value" today rests on cross-linked IOU's. When those IOU-dollars begin to evaporate in earnest, desperation for the underlying "asset" (a dollar, as perverse as that seems given that the dollar is backed by nothing and preceded by no production of value) should skyrocket." ...MORE
