The Resilience Stability Trade-off: More lessons from Nature (Chancellor take note!)


I can’t, wouldn’t, claim credit for this extremely interesting extract from a really well informed blog by Ashwin Parameswaran – the link to the item is below and, if you like this I would recommend a visit.

In view of the continuing displays of utter dis-engagement from the real world – where citizens dwell – by [the bankers’ and Corporations’ pawns] those we refer to as “Political Leaders”, I really wanted to get this out there for some thought. Surely if a Government “micro manages” a budget, to achieve short term results – which is entirely in keeping with the culture that got us all into this mess – without fully considering social costs they are merely deferring the inevitable and extremely unlikely to achieve their goals at macro level!? The national economy is, in itself, a Complex Adaptive System (CAS) and a node/hub within the global CAS so, unless a holistic view is taken, a sustainable progressive strategy is unlikely.

But please don’t linger too long on my own comments as the full article is worth reading from economic, ecological and social perspectives. Complexity is the thread.

Mancur Olson. In his final work “Power and Prosperity”, Olson notes: “subsidizing industries, firms and localities that lose money…at the expense of those that make money…is typically disastrous for the efficiency and dynamism of the economy, in a way that transfers unnecessarily to poor individuals…A society that does not shift resources from the losing activities to those that generate a social surplus is irrational, since it is throwing away useful resources in a way that ruins economic performance without the least assurance that it is helping individuals with low incomes. A rational and humane society, then, will confine its distributional transfers to poor and unfortunate individuals.” Olson understood the damage inflicted by rent-seeking not only from a systemic perspective but from a perspective of social justice. The logical consequence of micro-stabilisation is a crony capitalist economy – rents invariably flow to the strong and the result is a sluggish and an inegalitarian economic system, not unlike many developing economies. Contrary to popular opinion, it is not limiting handouts to the poor that defines a free and dynamic economy but limiting rents that flow to the privileged.

via The Resilience Stability Tradeoff: Drawing Analogies between River Flood Management and Macroeconomic Management at Macroeconomic Resilience.

I have taken a final thought on the ecological perspective, or learning “lessons from nature”, from a contribution to a recent discussion on “Power Laws and Accidents” by an eminent mathematician:

Adaptive processes tend to be based on sample stats…and hence tend to seriously under-estimate the dangers when the sample stats tend to significantly under-estimate the true parameters.

Epidemics fit this model. Perhaps more surprisingly, so do forest fires: the patterns of burnt ground versus growth at various stages evolve to provide stability. More trees leads to disaster. Less trees leads to more trees. In between there can be a sustainable forest, with periodic moderate fires. If we make an analogy with finance, then in finance we try to build fire-breaks and then to have as many trees as possible. This can work for a while, but at some point the defenses will be breached, and then one has a wipe-out. It is more sustainable to have a forest with random lightning: if it is frequent enough the forest will never grow to a dangerous condition.

“Is seeing believing?”: Not when it comes to the deficit


I watched a very interesting programme on BBC2 last night. Horizon: Is seeing believing? It dealt with a variety of optical illusions and investigated how our brain and senses work. Available on BBC iplayer for 7 days. Definitely worth a look.

But, what they didn’t explore is the need for a 6th, maybe even 7th sense to help us see the truth through the smoke and mirrors created by our Political leaders and their “brother bankers”!

When I woke up yesterday I did so to this news:

In a letter in tomorrow’s Daily Telegraph, 35 business leaders say they “would encourage George Osborne and the Government to press ahead with his plans to reduce the deficit”. They add that it would be a “mistake” to water down or delay the deficit reduction plan.

Well they would wouldn’t they! That way WE carry the can and they get some “insulation”.

NOW I am not blind to the fact that we are in a hole. Nor the pressing need to take pretty drastic steps to tackle it. What I have a problem with is how many times do the ordinary citizens of UK have to pay?

(1) The banks had our money. Leveraged it, gambled it and lost it.

(2) So WE bailed them out. We kept our debt, paid theirs and got what?

Now they are returning to profit -. Nice big bonuses all round “HURRAH”…

…but how?

(3)CITIZENS: That’s right, by overcharging the (already, two time losers) to continue to use their facilities. I hesitate to call them services as this in some way infers that we are viewed as customers when really all that we are is a series of numbers whose indebtedness is a satisfactory substitute for loyalty (which is much more costly!)

SME (the backbone of our economy): Even the BBA have admitted that they haven’t been fulfilling the commitments they gave to, lend to and support , British business. That is FAILING BRITISH BUSINESS to you and me!

Vast amounts of money being printed (Quantitative Easing) to artificially maintain the market. Inflate, as in balloon or bubble so that “market value” has little or no meaning. Banks with multi billions of toxic assets that they cannot afford to see properly revalued (even spellchecker wants to replace this with devalued!) and nations whose currencies are shot.

Well at least that provides a great backdrop for “financial players” to make even greater killings on both stocks and currencies. Nice work if you have no moral fibre.

(4) Now we all have to prepare for further detail on Austerity measures. These will entail deep cuts to vital Public Services. We know that the Public sector grew “fat”  and inefficient during the Labour years – fed by the taxes created (I nearly said earned!), to a large extent by the spectacular – if ultimately unsustainable growth – of the UK Financial sector. Of course every one was happy to bask in the faux prosperity and to welcome the fact that the Public sector was better than it had been for a generation. Not much of a benchmark then!?

So the people who don’t have the luxury of one or two average salaries will feel the greatest impact and, effectively, pay some more for the greed and folly of “the elites” – I chose this phrase deliberately as it relates to other recent blogs covering COMPLEX SOCIETIES from history and “words of wisdom” from eminent Sociologist, Ulrich Beck.

Do yourself a favour and take a look at this video that, whilst I wouldn’t say I endorse every aspect of it, I think gives everyone the opportunity to understand about Austerity and be entertained in the process.

Best of all it’s not my fault – so I don’t have to say sorry – just point in the direction of somebody else. Like they, with all their City connections, didn’t know what was happening and were too weak to do what an opposition party is supposed to!!!

How long before the, justified, feelings of anger, disgust and injustice manifest themselves as strikes and civil unrest?

How much will that cost the economy?

Of course “they” don’t know because they haven’t thought that far ahead. It doesn’t fit with the culture that got us here in the first place. Results, quick return or early payoff. If I get it right I win…who cares who loses!

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Fund Strategy Magazine: Complexity lessons from nature for a better economic future…


In case you thought that “complexity management” is just more mumbo jumbo from the financial sector I suggest that you read the following piece and any of my previous blogs on the subject of complexity.

Complexity analysis, mapping and management is available NOW and, if a business leader is intent upon gaining a greater insight into their operations, making more informed decisions, managing more effectively, gaining competitive advantage and “staying ahead of the curve” this is the time to contact me: david@ontonix.com or on +44 (0) 7919 917150.

In the wake of the 2008 crisis, some economists have started to base their financial models on an approach that mirrors biological ecosystems, focusing on how companies interact and markets evolve. Vanessa Drucker reports from New York.

A model is like a little toy. Social and natural sciences use theories, based on assumptions, in an imperfect attempt to make sense of the world outside. While the history of science traces refinements in our understanding, reality may, over time, reveal how painfully inaccurate the models were.

Just as new theories shook the foundation of physics in the early 20th century, financial theory faces its own upheaval. Before the crisis struck in 2008, regulators tended to focus on individual financial firms and banks, rather than on addressing systemic risk across the entire global network. Traditionally, a micro-style financial theory looked individually at how to evaluate a company, a derivative, a swap or even a collateralised debt obligation (CDO), or how to optimise a portfolio or annuity. More recently, a movement has been gaining momentum to model how firms relate and interact dynamically.

To tackle the problem, economists consider an “evolutionary” paradigm, as an adjunct to, or replacement for, the rational expectations framework that has dominated the field for more than 60 years. Both physical and financial activities can be described by parabolic partial differential equations, a tool that could illustrate either heat diffusion or options pricing.

Read the remainder of this enlightening article here.

”Imagine assessing the robustness of the electricity grid with data on power stations but not on the power lines connecting them”

World Economic Forum: Risks 2010 – Issues for communities…GET INFORMED


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WEF Risks 2010. The WEF report from January this year is not a matter that should be lost in the “heat” of pre-election bullshit over, what are, essentially local issues.

Of course,  there are HUGE issues, like wars on foreign soil, national debt, unemployment, etc. but much of these are symptoms of a greed culture (the “culture of me”) that marginalises &/or disrespects the needs of the wider community. Manifest in the lack of governance and integrity demonstrated by our political and financial leaders.

Of course in this modern, inter-connected, world “Community” has taken on new – or renewed – meaning  and sit in a number of domains.

Concerned communities representing the “culture of we” should not be distracted by local issues and cannot allow those in the positions of influence to abuse their power in the manner that they have. If we do not press them to pursue solutions to the issues that affect us all, globally, they will content themselves with the smokescreens of name calling, non-dom. residency, televised debates, “leaders wives”(!) and related trivia.

Both of these graphics provide a pretty concise means of gaining a view of the “big picture” AND demonstrate the sheer scale, inter-connectedness and complexity of global world. But, what they also clearly demonstrate to me is that this translates back into our communities an irrefutable INTERDEPENDENCE. A NEED to work together…SELFLESS NOT SELFISH…for a more ROBUST future when the only certain thing is that UNCERTAINTY will impact every domain.

imageIf you would like to view all of the information for yourself please follow this link to a great “info graphic”  that enables you to view the WEF assessment of the various risks from a variety of information yourself.

IF you choose to do that you will note that, whilst I have inserted a graphic relating to “Financial crises” (yes that is plural!) I have not inserted the graphic relating to “Asset price collapse”. Why? Because it would probably look like I was intent on using the most “extreme”, or, in terms of the WEF report, most likely risk to illustrate a point in relation to the urgent for a dramatic overhaul OR ADDITION to the conventional management of risk.

Each and every graphic “snapshot” and every meaningful report on risk (from some of the largest, most prestigious firms, keenest commercial and academic brains) illustrates and refers to increased or increasing complexity and the threat that this brings.

None have yet provided a worthwhile tool with which to commence the process of identifying solutions…

 

No transparency = no trust


The Head of FSA tells us/them that: Banks Must Restore public trust

He should realise by now that, until such time as regulatory bodies and politicians ACT to force change, this will sound like yet more sabre rattling in an attempt to fool the public…or have grown I too cynical!?

BBC – Peston’s Picks
“It is counter to common sense and social justice that taxpayers should insure investment banks, which are no more socially or economically useful than any other kind of imaginable business”.

Are these the same taxpayers that elect governments and own banks!!?

“The level of debts written off because defaulting borrowers will never repay them shot up in 2009, Bank of England figures have shown”.

Oh no(!), how the hell could that happen??? It’s OK I am only kidding. I do remember.

THE MESSAGE TO BANKERS FROM GOVERNMENT: Don’t worry about it. Don’t fret for your professional reputation, financial penalty, prosecution or the impact of your collective actions upon your relations, neighbours and fellow citizens – we really should be happy to help – For, as long as the routine is to “privatise profits and socialise losses” and tiptoe around regulatory change nought will change.