Wednesday, September 22, 2010

Can I trust something I cannot see?

Whenever I have the opportunity to look at systems like economics, or any situation that shows the characteristics of a spontaneously, organically formed system, a reoccurring theme always emerges; a system cannot anticipate a problem, it can only react with the mechanisms available to it. I know that hardly resonates with profundity, but it should be noted that every complex system has within it, the tools available to react quickly, exactly and effectively. This reaction capacity is the defining characteristic of a viable, sustainable complex system, opposed to something that is simply complicated. Furthermore, being unable to anticipate problems may sound like a crippling limitation, yet the reaction is so rapid and on such a localized scale the that the vast majority of disturbances remain localized.

To apply this to the province of macroeconomics, occasionally a systemic disturbance may propagate throughout the entire economy, yet the simple underlying rules and the decentralized nature allow for a rapid and proportional response to any shock that does not completely destroy the system. It is the beauty and the precision of that response that I believe most interests the Austrian Economists, regardless of where it falls on the business cycle. When economies are in difficult or transitional times, their true functioning nature as a self-sustaining complex system emerges. In fact it is the hardships that keep the system healthy and nimble. In contrast, the Keynesians are completely obsessed with arresting complex systems right in the middle of their moment of self-healing glory, they stop the massage before one can really relax, and well before the happy ending. Keynesians cannot predict business cycles, nor can they react as effectively as the natural economy, yet they will bet the wealth of an entire nation on premise that they most certainly can. And as our lecturer mentioned, set off an entirely new cycle of artificial growth with an accompanying (and entirely natural) economic crash.

So it’s a mutually exclusive choice being offered: being unable to predict a business cycle but being confident that it will simply take care of itself (try that line on your constituents); or being unable to predict a business cycle and being able to react only like an idiot, yet setting up your response to ensure that idiots now have a very necessary role to play in future decision making.

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