Five Things You Need to Know: The Crisis of Non-Linearity
What we are facing is a failure of our former narratives to account for how we now experience the world.
Not quite Five Things today, more like One.
Below is a comment from a reader, passed along in case others may have missed it since it raises many very good questions, and following it is my reply:
I've been reading you for years and can't recall ever being troubled or disappointed by your work. I have to say though I'm really bummed by #2 in today's Five Things. Maybe I'm missing something. It appears you believe the table suggests a doubling of the share of US imports by the named countries, presumably because the bar charts are nearly twice the size in recent years. The problem is that there is no zero point on the Y axis, and so bar size means almost nothing. My dilemma is that this seems to suggest you didn't catch the obvious confusion or you thought it was reasonable to pass along without noting the silliness; alternatively, your purpose for presenting it may have escaped me.
Here's my take on your #2. I very much appreciate your main point that bankers and politicians LOVE bubbles, but that normal citizens don't fare so well. But the chart and quote from Porter, as you've used them, seem non sequiturs. They may support your thesis, but not as you characterized them.
The chart wasn't a compelling illustration that BRIC nations had benefited greatly from the bubble and seemed to have more skin in the game now than ever. It did not illustrate the importance of bubbles to BRICs or their bankers/politicians (though I take this premise as a given). If anything, the chart and quote illustrate the prevalence of noise and presumably advocacy in commentary; after all you found the quote and chart on Bloomberg. It's supportive of your basic thesis in so far as it is an example of the kind of noise generated to confuse and obfuscate an understanding of issues, which is of course required if bankers/politicians everywhere are to successfully continue their happy bubble blowing scams against the interests of their fellow citizens.
The other point that elevated my bummedness from just bummed to really bummed, I think upon a re-read, was my own confusion. Your reference to the business cycle and characterization of Capitalism as a series of bubbles is qualified with the important phrase, "as it is practiced." There's a lot packed into those words, and I missed them on first reading. So presumably you haven't been supplanted by aliens nor corrupted by those you've ridiculed for many years. I feel better already."
- Wade Gibson
Re: Signal and Noise, the Crisis of Non-Linearity
Nope, I was in a rush and admit number 2 was confusing. The bottom line I wanted to present was that "protestations" by Asian and other governments about "hot money" flowing into their economies is a case of "listen to what we say; do not watch what we do."
Your summary at the end, even if I made you work for it, is as good as any: "It's supportive of your basic thesis in so far as it is an example of the kind of noise generated to confuse and obfuscate an understanding of issues, which is of course required if bankers/politicians everywhere are to successfully continue their happy bubble blowing scams against the interests of their fellow citizens." Yes, that is it.
My larger point is the one you touch upon at the end; namely, that those who stand aghast at the serial bubbles being produced by our version of capitalism are missing the forest for the trees. There is a view, mistaken in my opinion, that we will eventually stumble into a bubble that will be too big and... then what? No one really has much of an answer for that. My answer is that it will synthesize into Some Thing Else that no one has thought about -- a black swan of sorts -- and we will simply carry on.
There is a viewpoint seemingly shared by the majority that "black swan events" are, by definition, negative events. This is categorically untrue. Black swan events simply must be unanticipated and unexpected.
On a smaller, micro level, and in this example I'll take something close to home, let's look at the infrastructure in New York City. One way of looking at the world is to see the infrastructure in New York City is decaying and aging and falling apart and bemoan it. Another is to see that the infrastructure in New York City is decaying and aging and falling apart and consider how much greater it will be when it is replaced with newer infrastructure.
There are, naturally, costs that must be borne to replace it. Those costs (and here we must consider what the notion of cost itself is; that something of value must be exchanged for something else) will be significant. But those costs are also investments in the future. They are investments in more efficient energy delivery, more efficient roads that reduce the cost of maintaining vehicles, more efficient transportation, etc. etc. Those investments can, in fact, produce a return.
I apologize for appearing to have been replaced by a Polyanna, but what I became disturbed with in my own thoughts and writings was an increasing one-sided attitude... no, not attitude...belief system... that things were spiraling out of control into a cataclysmic culmination, an end qua end. That belief system simply does not hold true to my experience in the world.
I do not believe our institutions are, by default, evil. I do not believe our government is, by default, evil. I do not believe the Federal Reserve is, by default, evil. Ben Bernanke's daughter attended the same college as I did. Presumably he wants her to enter a better world the same way we want our kids to enter a better world. Or perhaps that simply makes me in on the scheme?
No, I don't think so. Closer to reality is that there are a few bad people, with bad motives, in all institutions. There are a few bad people, with bad motives, in government. There are probably a few bad people, with bad motives, in the Federal Reserve. There are also a few bad people, with bad motives, writing on Web sites, selling hot dogs from carts, working as coffee baristas, and so on and so on.
Now, it's entertaining to stand back and call people involved in these institutions and government and central banks idiots, thieves and cowards. If as the Editor-in-Chief of Minyanville I consistently placed Web traffic and page views above our mission -- to educate, inform and entertain people about business and finance -- then I would simply run more of the same hyperbolic gibberish you can find anywhere:
10 Reasons Ben Bernanke Has Destroyed Capitalism
16 Fresh Threats Facing the Economy... Presented in a Slideshow!
But at the end of the day, hyperbolic gibberish doesn't help us make money, nor does it help us understand what is happening in the world. There will always be 16 fresh threats facing the economy. And the notion that Ben Bernanke has somehow single-handedly destroyed capitalism... or America... or this economy is simply untrue.
All of this explanation, most of which you did not ask for, is not to downplay the seriousness of the crisis we face. But I don't believe the crisis is one of government, policy, institutions or central banking policy, which are merely symptoms of a crisis that is deeper and much more profound. Simply put, it is the crisis of confrontational non-linearity.
The technological revolution was not simply the ability to detach communication from land lines. It was not simply the ability to deliver massive amounts of information across vast distances. It was not simply the ability to shrink geography and expand our cultural and social networks across space and time.
Instead, this ongoing revolution has illuminated a world of non-linearity that already existed but which, faced with the limitations of physical space and time, was not always readily apparent. The unexpected, unfamiliar and unexplained in that previous world was the outlier, the exception. Consequently, our experiences were readily shaped by narratives, self-created and self-imposed linearity on a chaotic world masked by the the power of modernity; the assembly line, the order of the urban landscape, the institutionalized translation of events into narrative cause and effect, that is to say, media, history's gatekeeper.
By simultaneously shrinking distances and expanding both the amount of information we can access and the size of our social and cultural networks, we have increasingly been forced to confront non-linearity; events which could not have been predicted, narratives that are no longer explanatory for our experiences. The assembly line has failed. The order of the urban landscape was a hoax. The gatekeepers have fallen. It is no longer possible to explain our experience of the world in a convenient linear narrative because empowered by advances in technology, advances we are still grappling with, and the shift in physical space these advances have create, the compression in time these advances have created, A + B does not always lead to C. It is a crisis, a crisis of non-linearity and the failure of our former narratives to account for how we now experience the world. This crisis affects everything from communication to currencies to finance, valuation, what constitutes a "price," to education, entertainment, art and religion.
Now, some will believe this is overstating things. But I will be doing my best over the next few months to show how this is the case. Thank you for the note, Wade, and for taking the time to read this long-winded explanation of how my views have changed.
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