"It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid." Lucius Anneaus Seneca, Letters to Lucilius, n. 91

Friday, February 5, 2016

The financial collapse as an example of a "Seneca Cliff"





The concept of "Seneca Collapse" has been discussed by "Zero Hedge" where Tyler Durden reproduced an article previous appeared on Charles Hugh Smith's site. Smith says:
I propose that the Global Recession of 2016 will trace the Seneca Cliff as described by Ugo Bardi.  ... I think a strong case can be made that the global financial/economic system is primed for a ride down the Seneca Cliff.

This makes a lot of sense. In the hierarchy of complex systems, the financial system is, indeed, one of those most easily prone to collapse. Many biological and social systems have built-in systems to manage emergencies and counter the external perturbations that may send the system off balance. In biological systems, we have, for instance, the immune system; in the social systems we have the army, the firemen, and others. But the financial system has none, at least none that is built in the system. Actually, it may be argued that the world's financial system is purposefully built in order to be unstable, even though external entities - governments - may try to stabilize it.


Of course, the application of the Seneca phenomenon to the financial system is somewhat different from the model I developed. A better model for financial collapse could be developed, probably, starting from the punctuated collapse model of complex networks developed by Bak et al. But, in the end, it is the same phenomenon: the rapid collapse of complex systems is a property of connected networks; where the breakdown of one or more links may generate a cascade of broken links that brings the system down to a lower complexity state. In my model, there are only three nodes in the network, but that's enough to generate a rapid collapse.

But what are these models for? The concept of the Seneca collapse applied to the financial system is not so much a tool for predicting something. We know that financial collapses have already happened in the past and we won't be surprised if they will happen again in the future. Models are, instead, a framework for understanding the reasons of collapse. The main message, in this case, is that most complex systems are fragile and tend to collapse, unless there exists something that operates in order to stabilize them. And a problem of conventional economics, as Smith notes, is that: 


Conventional economists are entirely blind to system fragility. There is no ready Keynesian Cargo Cult econometric formula that measures systemic fragility, so it simply doesn't exist within conventional economics.


Is it a problem? Maybe not so much, at least in the long run. Fragile systems collapse and disappear, resilient ones tend to survive and take over. It has always been like that, it is called natural selection. Eventually, by trial and error we'll learn how to manage complex systems. It won't be painless but, on the other hand, no one ever said life was fair. Just eventful.










8 comments:

  1. Thank you Ugo for the optimistic ending of this piece " Eventually, by trial and error we'll learn how to manage complex systems. It won't be painless but, on the other hand, no one ever said life was fair. Just eventful."

    Humans at their current evolutionary state are more adapted to riding waves of complexity than managing them. That is OK in my book. Perhaps pain will induce better systems management and design skills.

    Many systems, in my opinion have become overly complex per their original stated function.

    For example: where I live the Water company now handles trash removal and recycling too. Other than a service billing connection there seems to be little in common with the two services functionally.

    Perhaps were reaching a state with many systems of what Joseph Tainter called diminishing returns on complexity?

    I believe that is the case now and since so many systems are networked to achieve efficiency in sharing ownership of cross functional dependencies, as one system becomes unstable a ripple effect is inevitable.

    Per my memory Tainter also described "Collapse" as a rapid reduction in Complexity, the Seneca model portrays this well.

    Many thanks to you for furthering my education on such. It is amazing that our world of today enables a Professor in Italy to teach a student in the USA.

    Molte Grazie!

    Your student, Michael


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    Replies
    1. Well, thanks Michael. I am not sure if I can teach anything to anybody. What I know is that sometimes I walk into a room, there are young people sitting there, they look at me and I emit sounds in their direction. Whether these sounds are decodified into something that makes sense, it is hard for me to say. But, well, maybe someplace, somewhere, they ARE decodified!

      Delete
    2. Your welcome Mr. Bardi. I am only a couple years younger than you and what you teach from my perspective is how to learn about and analyze reality or potential realities thus improving my cognition of discernment.
      Why do I believe that is good? you may ask.
      Because it improves my option set and ability to thrive and survive. Simple!

      Delete
  2. Here's a graphic of the cliff at the end of the 'Seneca Trap' that I drew in 1979, and an illustration of how our growth system would have needed to turn away from the trap in time to avert the worst of climate change without societal disruption. I have all sorts of explorations of why our culture doesn't learn about this grand scale recurrent problem.

    It's very simply described, as investing profits in expanding consumption till there are no profits, like bankruptcy, busy systems then begin to collapse in waves. The cure is to repurpose system profits to caring for the resources being profited from before going bankrupt.

    http://synapse9.com/issues/images/theInfiniteSoc-fig_sm.jpg
    http://synapse9.com/CO2-DecouplingTargetModel1.jpg

    ReplyDelete
    Replies
    1. Thanks, Jessie. I knew your work already. Now, I'll try to follow you even more!

      Delete
  3. Thank you for sharing the JPG files Jessilydia.
    I would like to hear more of your explanations/explorations of why Earth culture doesn't learn about recurrence. Please feel free to send an email to me or if Ugo will allow send a comment back?

    ReplyDelete
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