Centralism, complexity & the crisis of capitalism
John Robb contends that the worsening global economic crisis is in part due to an overcentralization of economic decision-making. Excerpt:
The idea is simple. That capitalism, as it works today is failing. It lunges from crisis to crisis, each with increasing severity and duration. Ceteris paribus, we are headed for a decade long economic depression.
Why is it failing? Its decision making is EXTREMELY centralized. Centralized economic deicison making (aka “central planning”), as the Soviet nomenklatura found out, doesn’t work in a complex modern economy. Here are some signs of extreme centralization:
- Wealth stratification. Fewer but bigger piles of liquid wealth. Trend is accelerating.
- To big to fail (TBTF) companies/systems. Interconnected, sprawling.
- The shadow banking system (a $650 trillion pile of interlinked derivatives — in contrast, the entire global GDP is $50 trillion and sinking) that sucked a sleepy US mortgage market dry.
In John Boyd’s terms (the best strategist America ever produced): the decision making, or capital allocation, in our economic system is made by a small number of decision makers. These decision makers, collectively, represent a very small number of decision making loops (the process of making a decision).
Quoting Boyd, Robb goes on to assert that decisions are still being made by people in thrall to rigid ideologies that are divorced from conditions in the real world. The financial elite, “built ziggurats of financial complexity and speculation to produce returns not possible in the real world. Speculation so fantastical, that it produced some of the most grotesque misallocations of capital in history.”
In his column today, David Brooks writes:
The prognosis for the next few years is bad with a chance of worse. And the economic conditions are not even the scary part. The scary part is the political class’s inability to think about the economy in a realistic way.
Yet the ideologues who dominate the political conversation are unable to think in holistic, emergent ways. They pick out the one factor that best conforms to their preformed prejudices and, like blind men grabbing a piece of the elephant, they persuade themselves they understand the whole thing.
Dems want more government spending; Repubs want spending cuts and tax cuts. Says Brooks:
Both orthodoxies take a constricted, mechanistic view of the situation. If we’re stuck with these two mentalities, we will be forever presented with proposals that are incommensurate with the problem at hand.
“Rigid ideologies.” In their separate ways, Brooks and Robb put their fingers on what I find so unnerving about the present moment: not so much that the problem is bigger and more complex than we thought, but it’s bigger and more complex than the imaginations of our leaders. It’s as if they were trying to fight a 21st-century war with 20th-century strategies.