I know of a non-standard interpretation of economics
and it predicted the chaotic nature of capitalism some times
in the past...
What help would it be even if we were able to completely
map the capitalist economy to a mathematics formulae?
Eva
> Worth 5 minutes!
>
> Steve
> ------------------------------------------------------------------
> Toronto Globe & Mail
> Thursday, September 3, 1998
>
> The End of Pop Economics
>
> By Robin Bienenstock and Thomas Homer-Dixon
>
>
> Toronto -- The current crisis in international markets highlights
> inadequacies in the way economists and other analysts think about the
> global
> economy.
>
> The crisis began with the devaluation of the Thai baht in the summer of
> 1997. It spread through Southeast Asia, battering one economy after
> another,
> and is now rolling through Russia and Latin America. Lately, many analysts
> have concluded that economic recession in the world's emerging economies
> will affect the industrialized countries of Western Europe and North
> America; some even speak of impending global depression.
>
> This crisis is far from over, yet it is already rich with ironies. Three
> stand out:
> Only days ago, Stanley Fischer, first deputy managing director of the
> International Monetary Fund, attacked billionaire financier George Soros
> for
> causing panic when he called for the devaluation of the Russian ruble. How
> strange to hear a senior IMF official echoing the sentiments of the
> belligerently anti-Western Prime Minister of Malaysia, Mahathir Mohammad.
> When Mr. Mahathir himself attacked Mr. Soros last year, he was condemned by
> Western commentators for scapegoating speculators and Western-style
> capitalism instead of focusing on economic mismanagement closer to home.
> Since Aug. 14, the government of Hong Kong has spent billions of dollars
> buying stocks on the Hong Kong stock exchange. Today, the government of
> this
> bastion of free enterprise owns about 6 per cent of the stock market's
> entire value. Moreover, it is proposing curbs on stock and futures trading.
> When Mr. Mahathir introduced similar curbs last year in Malaysia, he was
> once again roundly criticized.
> The non-convertibility of the Chinese currency, the yuan, is now a critical
> bulwark against a deepening of the crisis. The country's policy of
> insulating its economy from global capitalist pressures is thus helping to
> protect the capitalist system from itself.
>
> These developments are not only ironic, but instructive. They reveal
> internal contradictions in the standard economic analysis that guides
> policy-makers' responses to the crisis.
>
> Briefly, the standard analysis runs as follows. The boom cycle of the early
> 1990s in the East Asian economies was powered by cheap labour, government
> commitments to export-industries, close co-operation between government and
> business leaders, and liberal lending by domestic and foreign banks. All
> these factors generated strong optimism among investors about prospects for
> economic growth. But the pendulum swung too far. Many of these Asian
> economies had weak institutions, especially those governing the banking
> sector. As a result, lenders opened the spigots too widely, co-operation
> between government and industry became collusion and corruption, and
> optimism became unbridled greed. Once a series of relatively small events
> such as the baht devaluation revealed the deep weaknesses of these
> economies, panic ensued. Foreign lenders and investors fled, contributing
> to
> a credit squeeze that choked off growth.
>
> Such explanations are fine to a point, but they miss many things. First,
> they suggest that North American and European investors are largely
> blameless in the creation of this crisis or even that they are victims of
> developing-country profligacy. Thus, a recent Globe and Mail editorial
> argued that "even provident members of the world community pay the price
> for
> their wayward neighbours."
>
> Second, they imply that economic analysis alone gives us an adequate grasp
> of key social processes. Economic factors are assumed to trump all others
> in
> the shaping of our societies' destinies.
>
> Finally, and most important, these explanations are, at base, mechanistic.
> Conventional economic analysis assumes that economies work much like
> clocks:
> They are finely crafted machines that exhibit clear cause-and-effect
> relations among their parts. In such machines, the twist of a screw here or
> the turn of a nut there, whether an increase in interest rates or a cut in
> government spending, produces predictable and easily calibrated results.
>
> Reality, as the current crisis shows, is much more complex and not at all
> machine-like. The global economic system now resembles, rather than the
> closed and predictable mechanism of a clock, something closer to the open
> and chaotic system of the weather. In the world of international finance
> and
> trade, modern computer and communication technologies have sharply
> compressed time and space, and boosted traders' ability to move vast
> amounts
> of capital instantaneously. Market-relevant information, both fact and
> rumour, also moves at the touch of a button. These changes have produced
> market forces far stronger than any single government.
>
> Researchers in the field of "complexity theory" are developing new ways of
> thinking about such phenomena. They have found that economies, ecologies
> and
> the Earth's weather have certain common features. For instance, in complex
> systems a small event like the baht devaluation can trigger an avalanche of
> consequences that is both entirely unpredictable and far larger than the
> original event. As these consequences cascade into one another -- as, for
> example, one Southeast Asian economic collapse precipitates another --
> people trying to steer the system have little opportunity for analysis,
> reflection or intervention. Key components of complex systems are often
> tightly "coupled," or bound together.
>
> In today's global economy, this means that no single actor or group of
> actors can be held either entirely blameless or entirely responsible for
> the
> current debacle. Just as the Russian, Japanese and Indonesian governments
> are guilty of poor economic management, so are German, British and American
> banks guilty of too-liberal lending.
>
> Partly because of the characteristics mentioned above, complex systems can
> behave one way for a long time and then, quite unlike clocks, suddenly
> cross
> a threshold and start behaving entirely differently. In East Asia, we see
> that a self-reinforcing cycle of investment, profit, consumption and more
> investment has suddenly flipped to a negative cycle of falling investment,
> failing banks and crashing consumer demand.
>
> Lastly, complex systems are invariably composed of many separate
> subsystems.
> There is more to the current crisis than economics; the world's economic,
> political and even ecological subsystems are tightly interlinked. Yet
> standard economic analysis has little to say about the political gridlock
> in
> Japan, Russia and the United States that is powerfully contributing to
> inaction, even paralysis, on the economic front in these countries.
> Standard
> analysis has even less to say about the ecological disasters -- such as
> last
> year's wildfires in Indonesia and the recent flooding in China -- that
> exacerbate economic problems. China's flooding alone may knock several
> percentage points off the country's growth this year, which could tip the
> balance against its struggle to maintain the value of the yuan.
>
> Policy responses to the current global crisis are grounded in a standard
> interpretation of how economies work. But the standard interpretation
> cannot
> adequately explain some of the events we see; what's more, it produces the
> kinds of policy inconsistency we highlighted at the beginning of this
> article. National governments and international agencies like the IMF are
> sending contradictory signals by, for example, praising the salutary
> effects
> of free markets on the one hand and condemning the activities of
> speculators
> on the other. These inadequacies and inconsistencies not only make it
> difficult to resolve the crisis, but may lead us deeper into it.
>
> Theories about the behaviour of complex systems are still in their infancy,
> but researchers around the world are pushing back our frontiers of
> understanding. A better understanding of today's complex, interlinked
> global
> systems cannot arrive too soon.
>
> Robin Bienenstock is writing her doctoral thesis on complexity theory at
> the
> University of Toronto. Thomas Homer-Dixon is director of the Peace and
> Conflict Studies Program at the University of Toronto.
>
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