Monday, June 22, 2009

Complex Systems -- Healthy and Unhealthy

Here is an article that makes an interesting argument: that there may be things too complex to exist. I'm not so sure about that. However, that does not mean the author does not have some valid points. At the same time, he misses the main point, which is that the problem may not be that of being too complex, but of the system being improperly structured.

We have seen the issue of "too big to fail" raised in this current depression. The response has been to keep the big guys afloat and create a situation where even more companies will get even larger from absorbing many more small ones. This will only exacerbate the problem in the future. In fact, if we continue to push for ever-larger, ever-fewer companies in the world, we should expect a truly catastrophic collapse in the near future. The author generally agrees with this assessment, and pushed for smaller firms. However, the answer isn't just smaller firms for the sake of smaller firms. A healthy economy is a healthy self-organizing system, and systems self-organize when they obey power law distributions. In other words, big companies per se aren't necessarily the problem -- the number of big companies is the problem. In a healthy economy, one would expect firm size to be on a power law distribution. The second largest employer should be half the size of the largest employer, the third largest a third of its size, etc. More, there should be very few large employers, a medium number of medium-sized ones, and many, many small companies. The same should also be true of profits -- or whatever measure you want to use. We can take a look at the auto industry as an example of an unhealthy industry -- in the U.S. there are three companies, the Big Three, and that is all. Talk about improper distribution! If the government were going to intervene, they should have broken GM and Chrysler into smaller companies based on model. That would have gone a long way to creating a power law distribution of car companies in this country. More, it would open up the industry so that new companies could actually come into existence. The lack of new companies for this many decades now shows how unhealthy the industry has been for a long time. The presence of many companies doing the same thing also creates redundancy, which is also an indication of a healthy natural system. The socialist/engineering attitude or removing redundancy actually creates the kind of situation we are in. This is one of the main problems of monopoly -- whether private or government. With high redundancy, you don't end up with catastrophic failure, because there are so many other pathways information can follow. The problem, then, is bottlenecks, which should always be avoided in a self-organizing system. Regulations too often create bottlenecks. We need to find those that do, and get rid of them.

The bottom line is that the author is wrong insofar as he is arguing that our economy is too complex. It's not. It's unhealthy. Primarily because of legislation and regulations which create bottlenecks, give false information, prevent knowledge, and favor the creation of megacorporations. WIth the right rules, one will get a healthy system of very, very high complexity.
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