Paper of the Year Award 2011

Our Paper of the Year Award goes to:

Michael Harder of the Office of Interdisciplinary Sciences (Germany) who argued the case for using the developing science of complex systems to help understand the interactions now occurring in the financial system.  In a most thought-provoking presentation he showed how the new science can explain the inter-connectedness of the current crises of debt, inflation, population movements, and poverty and suggested the need for massive changes in the way we work, our currencies, production methods and Eurozone politics.  Along the way, the following points were notable:

·         Modern physics suggests the world comprises logical “islands” in an ocean of chaos and probability.  We prefer the logical and believe in causality, which leads to specialization. 

·         Specialists don’t recognize the wider reality.  They feel their island is the only correct one,  whereas many correct islands must be connected to perceive reality. This requires more complex thinking than we’re used to.

·         Order and Chaos are the key “attractors” with entropy leading to chaos and action leading to order. 

·         Ordered systems tend to deteriorate into chaotic systems and the chaotic tends to order.  The result is a natural balance best described by Darwinism.

·         “Darwinism is essential for any company management.”

However, reward of the fittest eventually leads to a growing population hitting system boundaries where the favoured species runs into the limits of its environment and risks crashing if it fails to correct its growth and adapt. (“Don’t try to work against nature”)

The global economy hit its system boundary about 25 years ago when we started consuming more resources than the planet could sustainably provide. 
It is now working against nature and committing four elementary errors:

1.    Growth is at the centre of society with all else subservient.  This is an unsustainable social philosophy.  Man used to be at the centre of the system with economics as one of his tools.  This was sustainable.

2.    The biosphere is limited but the demands of economic growth assume it’s unlimited.  Physics and Darwinism show that a system crash is the consequence of not adapting to the limit.  Further economic growth is now at the expense of over-exploitation of natural resources, the labour force, and family life.  Depletion of resources, unemployment, rising debt, family disintegration and demographic catastrophe are components of the system crash that is now becoming evident.

3.    In the last 30 years, Money Supply has grown ahead the value of goods produced by a factor of 10 and the resulting excess liquidity has fuelled speculative and complex financial dealings which appeared to offer greater wealth.  Sustaining this financial system and its compound interest requires exponential growth of the money supply which is impossible.  Paradox of Systemic Importance: as important participants in the system crash, any attempt at their rescue guarantees the future crash of the whole system.

4.    The Eurozone: Game theory simulations show that systems with multiple parties only work if all can defend their territory with their individual strength.  If a party is too strong or too weak and no correction is possible then a complete system crash is inevitable.  A correction was defined as war, devaluation, bankruptcy or game-exit.

In conclusion, Dr Harder argued the case for developing a new economic system now that we have hit the system boundaries.  The old one was fine and worked well up to about 30 years ago.  Unfortunately there do not appear to be any politicians capable of taking this task on board, so the future will be stormy.  Prepare for the period after the storm: you will be on a very different sea.

Summary from "The Physics of the Economy" given at the Sept 2011 Man Made Fibres Congress - Dornbirn Austria