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economy, political

Cause and Effect in Global Free Markets

This is a post I wrote to a question on LinkedIn about the cause of the financial crisis. I wrote about it before, but I gave it a slightly different slant here.

Nature and therefore everything in it – that includes the economy – is a complex adaptive system. The reasons for that are unknown but similar dynamically interacting structures even exist on the lowest quantum physical level. Schrödinger’s Cat (which is neither dead or alive until you look at it) explains that paradox of not finding cause and effect in this universe. And there certainly is not a single cause to anything, but just a complex resonance of potential across a source and sink. It’s called supply and demand in economy. Yes, executives did what they did but so did consumers. And not just Americans but so many in the global economy we now have. Even the 20 million Chinese farm workers who dropped their hoes to work in Shouzou are now horrified to go back to their farms. They played the cheap workforce that fueled the American shopping spree and made China the largest holder of American dollars – which in the end is good.

And no, it is not a problem of greed because greed is not a part of Capitalism. There are greedy people in any political fragment. Competing for more resources is the most natural thing and a part of evolution. What you call executive greed is no more than an outlier in potential (income). Everyone says now, we knew it couldn’t last but we played the game like everyone else. And rightly so. It is not the pay-packages that are the cause of this, because they are no more than a symptom. So what causes are there possibly on a larger scale? Economy as a complex adaptive natural system works best when the dynamics of change are unbridled. That’s why free markets work better than others. And that is the problem, because we do not have free markets as the entities (businesses and governments) involved are too big. Cascading or domino effects are normal in such systems but when the entities are too big then small changes can topple one giant and the other giants simply fall into the void created. If those giants are infrastructure relevant then a global structural crisis will ensue.

What we have right now is freedom of capital, which is not the same as Capitalism. Capitalism just needs free markets but not freedom of capital. Monetary instruments are a resource of free markets and need to be carefully controlled and tuned, much like running an electric grid. Both too much or too little can cause a collapse. Governments gave the financial business giants the authority to create monetary instruments (CDS) without any limitation or control and without the need to back them up with secured debt value. AIG simply insured that debt risk with some strange insurance model. When the real estate market crumbled, the dominoes came down one by one and governments now are trying to stop the dam from breaking. There is a fair chance it still will. Hang on …

The economic crisis that hit the automakers is not connected to the financial crisis. It was created by the media panic mostly. But also that would not be a problem if those car manufacturers were smaller. Some would fail, be reestablished, new more creative manufacturers would grow into the void. Resonance at work again. The unions however want to hang on to their power in those large automaker giants and thus want them kept alive. It is really not about American jobs there at all. Also large unions work against free markets and thus send American jobs to China.

There you go – we are all at fault and if by no more than voting for these governments that made these laws and buying Chinese made products or American cars. So all that I can see is that we all need to change. Start with the (wo)man in the mirror! Go vote differently (America already did) and buy at the small vendors rather than the super-chains where you are no more than a number …. don’t forget – consumer demand shapes the market.


About Max J. Pucher

I am the founder and Chief Technology Officer of Papyrus Software, a medium size software company offering solutions in communications and process management around the globe. I am also the owner and CEO of MJP Racing, a motorsports company focused on Rallycross or RX, a form of circuit racing on mixed surfaces that has been around for 40 years. I hold 8 national and international championship titles in RX. My team participates in the World Championship along Petter Solberg, Sebastian Loeb and Ken Block.


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© 2007-11 Max J. Pucher

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Max J. Pucher


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