We have reached the end of the year, which naturally moves us to look at how the financial markets have done. Yes, it is once again time to remind our readers how wrong the New York Times has been.
On April 2, 2005, the Grey Lady complained at length about the Bush administration's economic policies, and declared "the dollar is heading down, no matter what." Oh, really?
Read it all, of course. Financial matters are hardly the only area of "wrongness" in which the paper of record indulges these days. They have been spectacularly wrong on the Iraq war; on matters of national security; and just about any other major issue (except possibly the Yankees).
Tigerhawk attributes the Times' consistent error-proneness to its inability to understand "complex systems" and he refernces a lecture that it happens I have just finished reading (hat tip: Larwyn), by Michael Crichton. Crichton's speech is primarily about how badly the environment is being managed by "environmentalists"; but his concluding idea is applicable to stock market predictions; unintended consequences of national security leaks; and even the management of a complex system like the war in Iraq and against terrorism in general:
Now, if we are to do better in this new century, what must we do differently? In a word, we must embrace complexity theory. We must understand complex systems.
We live in a world of complex systems. The environment is a complex system. The government is a complex system. Financial markets are complex systems. The human mind is a complex system---most minds, at least.
By a complex system I mean one in which the elements of the system interact among themselves, such that any modification we make to the system will produce results that we cannot predict in advance.
Furthermore, a complex system demonstrates sensitivity to initial conditions. You can get one result on one day, but the identical interaction the next day may yield a different result. We cannot know with certainty how the system will respond.
Third, when we interact with a complex system, we may provoke downstream consequences that emerge weeks or even years later. We must always be watchful for delayed and untoward consequences.
The science that underlies our understanding of complex systems is now thirty years old. A third of a century should be plenty of time for this knowledge and to filter down to everyday consciousness, but except for slogans—like the butterfly flapping its wings and causing a hurricane halfway around the world—not much has penetrated ordinary human thinking.
On the other hand, complexity theory has raced through the financial world. It has been briskly incorporated into medicine. But organizations that care about the environment do not seem to notice that their ministrations are deleterious in many cases. Lawmakers do not seem to notice when their laws have unexpected consequences, or make things worse. Governors and mayors and managers may manage their complex systems well or badly, but if they manage well, it is usually because they have an instinctive understanding of how to deal with complex systems. Most managers fail.
Why? Our human predisposition treat all systems as linear when they are not. A linear system is a rocket flying to Mars. Or a cannonball fired from a canon. Its behavior is quite easily described mathematically. A complex system is water gurgling over rocks, or air flowing over a bird’s wing. Here the mathematics are complicated, and in fact no understanding of these systems was possible until the widespread availability of computers.
One complex system that most people have dealt with is a child. If so, you've probably experienced that when you give the child an instruction, you can never be certain what response you will get. Especially if the child is a teenager. And similarly, you can’t be certain that an identical interaction on another day won’t lead to spectacularly different results.
If you have a teenager, or if you invest in the stock market, you know very well that a complex system cannot be controlled, it can only be managed. Because responses cannot be predicted, the system can only be observed and responded to. The system may resist attempts to change its state. It may show resiliency. Or fragility. Or both.
An important feature of complex systems is that we don’t know how they work. We don’t understand them except in a general way; we simply interact with them. Whenever we think we understand them, we learn we don’t. Sometimes spectacularly.
I urge you to read Crichton's entire argument, because it is extremely good. As I mentioned, he is primarily concerned with the deliberate manipulation and hysteria that underlies the modern environmental movement. However, the environment and financial markets are connected in an interesting way.
As Marxism's predictions about capitalism were repeatedly demonstrated in the real world to be bogus, the intellectuals of the Left have moved on to other arenas in which they could attack capitalism. Quoting from Stephen Hicks again (page 153-4; I'm telling you, this book is invaluable):
A second strategic change in Left strategy involved a more audacious change of ehtical standards. Traditionally, Marxist socialism had supposed that providing adequately for human needs was a basic test of a social system's morality. The achievement of wealth, accordingly, was a good thing since wealth brought with it a better nutrition, housing, healthcare, and leisure time. And so capitalism was held to be evil because Marxists believed that it denied most of its population the ability to enjoy the fruits of wealth.
But as it became clear that capitalism is very good at producing the wealth and delivering the fruits--and that socialism is very bad at it--two new variations on Left thought turned this argument on its head and began to condemn capitalism precisely for being so good at producing wealth.
One variation of this argument appeared in the increasingly popular writings of Herbert Marcuse....
Following Marx, Marcuse believed that the historical purpose of the proletariat was to be a revolutionay class. Its task was to over throw capitalism. But that supposed that capitalism would drive the proletariat into economic misery, which capitalism had failed to do.
By making the members of the proletariat wealthy enough to become comfortable, capitalism had created a captive class: The proletariat had become locked into the capitalist system, dependent on its goodies, and enslaved by the goal of climbing the economic ladder....
Capitalism's producing so much wealth, therefore, is bad: It is in direct defiance of the moral imperitive of historical progress toward socialism. It would be much better if the proletariat were in economic misery under capitalism, for then they would realize their oppression and then be psychologically primed to perform their historical mission.
The second variation was seen in the Left turn that rising concern with environmental issues took. As the Marxist movement splintered and mutated into new forms, Left intellectuals and activists began to look for new ways to attack capitalism. Environmental issues, alongside women's and minorities' issues, came to be seen as a new weapon in the arsenal against capitalism. (emphasis mine)
It seems clear that the remnants of the 20th century Marxist social disease are still infecting portions of this country--including the editors and many of the journalists of the NY Times--and other MSM outlets. They probably absorbed the infection without even conscious awareness, as they percolated through various esteemed academic institutions. These institutions represent a hidden residual of pathogenesis and are the reason that Marxism continues to exert itself virulently in our society.
Marx and his intellectual heirs are hopelessly linear; as is socialism and communism. Only capitalism and free markets have the ability to adapt to the complexity of human life and interactions and optimize human progress, freedom and happiness.