February 3, 2009

• Economies as Ecologies/A Novel Idea

  Have you ever considered the Economy as a collection of economic organisms?  Units in real ecologies play a dizzying array of roles in an eco-system, that are often difficult to understand fully until they are removed.  Tinkering with the eco-systems of certain rivers has often resulted in unexpected consequences.  Repopulating ecologies with foreign species can also result in the devastation of indeginous species.  One of the features of well balanced ecologies is the presence of a diverse population of predators and prey that range up and down the food chain.  Diverse strategies for feeding and reproduction as well as diverse demands for resources allows more flexibility and resilience as conditions change. 

  This is true, whether one looks at insects or fish or birds... though insect populations are easier to study because of their short life cycles and potential for explosive population growth and decline.

  In a sense, the business and finance environment is very much an ecology of financial "predators and prey" trying to eke out a financially viable model to live.  In business, you don't have to "die" to feed another entity of course, but you do give up resources.  The best non-zero-sum game scenario is where one entity can use the waste of another entity productively.  This certainly happens in biological eco-systems. 

  So here's my hypothesis:

  If financial ecosystems end up with too much of a single type of strategy, too dependent on a single resource, you result in fragility in that system when conditions change; much like when a single predator has become dominant, and begins to feed on a previously plentiful resource.  When the resource begins imploding (such as killing off adults of a herbivorous population, leading to collapse of the repopulation rate), the predator population implodes.  In a sort of analogy, easy credit for housing created a glut of debt that could be repackaged.  Leveraging at higher and higher ratios was possible due to the apparent stability of such financial instruments.  More financial institutions adopted similar strategies in order to compete with leaders.  With such a huge proportion of available credit tied up into this group of strategies, it left the entire system vulnerable when the resource dried up (in this case, unsecure credit, repackaged), leading to an implosion in the "predators" in this case.

  Yes, it's an imperfect analogy, but I think that regulation of the finance sector needs to understand that companies evolve as strategies evolve.  It's not a zero sum game, but dangerous imbalances that occur in nature occur in markets... and that business approach diversity probably is the best insurance against catastrophic systemic failures.

  Someone disagree, please?  (Falankestock perhaps?  )
  

  ---

  One of my friends has been writing a book.  Happily, I've had the pleasure of perusing and commenting on that said book.  I'm truly as happy as a clam.  The process of commenting and the reading itself has been made all the more sweet because the content has been crafted well.

  The side effect?  One of the novel ideas that have been cooking in my head has now reached critical mass, and I'm writing like a fiend.  No doubt one of these weeks, I'll get burned out, and the idea will go back on the shelf... but I haven't worked on this one since 2006. 

  One of the ideas that I had back in 1998 has already been used in a book that I read in the early 2000's.  So that one is dead.    There are two authors that have really caught my attention these days.  They've captured much of the feel that I want.

  George R. Martin - The Game of Thrones series
  and
  Patrick Rothfuss -- The Name of the Wind.

  The texture of Martin's world is a lot like what I'd want.  The characters in Rothvuss' are much like the protagonists that I want to craft.

  Two more:  Scott Bakker created a metaphysical paradigm that I like.  Steven Erikson has a world that has a sense of history that I really enjoy.

  But as far as just the tale -- the characters and the plot -- I really envy Patrick Rothfuss ability to craft...

  In a sense, I feel like if what I want to write is already out there... maybe I'm already too late?

  Write on, and find out!

  • 11:23 am
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