Let it crash? The US and European Financial Crises

I originally posted this to another blog 2011/09/30. I have corrected some spelling and style issues but otherwise the content is the same and I still stand by it.

Here is a summary from NY Times. The German parliament, apparently not supported by the german people, has decided to approve the bailout expansion for indebted European countries. Luckily there are some countries left that opposes this.

I won’t pretend to understand much of international economy but what I like to think that I understand at some level is how systems work, and that some events can have unanticipated effects. There are two main reasons why I think that the other Euro countries should not throw money on this problem:

(1) Capitalism don’t work without accountability. There must be consequences to bad behaviour if the system is to self-regulate itself. It seems that there are opinions that capitalism is to blame for the current situation but the main problem is that governments haven’t made sure to hold people and organizations accountable for their actions. By lack of transparency, for instance by allowing weird and incomprehensible practices to persist in the US, and by letting the Greek government bullshitting its way through the Euro cooperation. And by letting every bank and corrupt government and people know that whatever they do they will be bailed out.

(2) Stock markets, and I guess complex socio-politico-financial systems, may behave like self-organized critical systems. Complexity builds up over time and is relieved through small crashes, decreasing complexity and causing new structures. However, the natural avalances can be stopped by government interventions. But what happens then is that complexity builds up even more, to the point that the collapse becomes catastrophic requiring even more artificial interventions. In my view that is what has happened now over time. In 2008 the collapse should have been allowed. Banks and businesses should have been held accountable and been allowed to crash. Complexity could have been decreased and new, more resilient structures could have been built up.

Instead the natural crash was stopped through artificial means, by increased US debt and money printing. And in Greece there have been similar ways to hinder a necessary collapse. Stop pumping funds into systems that are obviously flawed and allow them to crash sooner rather than later and let’s build something better instead. A more accountable capitalist system with a lower level of complexity and tensions.

I don’t have time to understand all the details of this mess, or check the validity of the self-organized criticality application above. But this isn’t academic research, its my opinion, and I have a feeling I’m on to something (along with the probably tens of thousands of other people out there with similar opinions that know more about this than I do).

Problem Solving

To solve problems it is necessary to identify them correctly. One way to define the term problem is as a contradiction between at least two desired outcomes. I like to categorize problems as being material, temporal, intellectual, or antagonistic.

Material Problems

Material problems include all manners of technical, biological, natural, and other spatial problems not directly caused by human interaction. A material problem is for instance one where there is a contradiction between the different properties sought in a material. One could for instance want a substance to be both flexible and hard, both of which might be impossible to get without some serious problem solving. The types of material problems I have dealt with include finding new ways of casting bronze.

Temporal Problems 

Some contradictions occur within ourselves because we have different preferences at different times. What feels good in the short term might not be beneficial in the long term. We often end up following our short-term interests by habit. So how can we change that habit?

”We are what we repeatedly do. Excellence, then, is not an act, but a habit.”

(From Will Durant, apparently summarising Aristoteles teaching, The Story of Philosophy: The Lives and Opinions of the World’s Greatest Philosophers.)

By taking small steps that give in to our long term interests, we grow a habit to considers our long term preferences. Our will can be changed by our will – if we take small steps.

Off course, forcing our will towards long term interests is also dangerous ditch to fall in since it removes us from living here and now. Only thinking about what is best for the future is a sure way to get stressed out, highlighting that it is beneficial to find the balance between our long and short term preferences.

Intellectual Problems

Mathematical problems can be closely linked to the material world but are clearly intellectual problems. Other examples include theological and philosophical problems. An intellectual problem is, for example, the supposed incompatibility between our responsibility for our actions, and the possibility that our actions are entirely determined by our genes and our environment.

Antagonistic Problems

These types of problems occur only because of human attitudes and behaviours. Some material, temporal or intellectual contradictions become problems only as a result of incompatibilities betweens individuals or groups. Sport competitions and civil wars are examples of antagonistic problems. Most estetic problems are also antagonistic problems, though often paired with intellectual (for instance colour theory) or temporal issues (fashion).

Problem solving involving more than one person will often be affected by antagonistic problems as we all have different pre-conceived notions and hang-ups of how problems should be viewed and solved.