Thursday, April 23, 2009

Intractable Financial Foolishness

Seymour Friedel asks why we are able to solve engineering problems once and for all. Every generation adds fixes to the nasty problems of the last generation. He cites problems with constantly crashing RAM, and automobiles that once needed continual "tune-ups". The fortitude of cars and computers today is astonishing to people who grew up with the older versions, but the same people stand stunned before the finance headlines of today. How can these things be happening again? Didn't everyone get the memo?

Friedel suggests that despite the availability of a written record, we are congenitally unable to learn from the past because nobody reads. Engineers, however, take the decision out of our hands by integrating the fixes into the product. "Strict revision control" is how he puts it, and that is certainly a term familiar to software developers. The implication is that finance needs to be engineered somehow, modularized, packaged with safeguards that incorporate protection even from the damned fools that everyone knows will follow.

I am a uncomfortable with some of Friedel's economic assumptions, but I agree with the thrust of his argument. In fact, engineering fixes have been attempted in the past, as he points out, but keep getting repealed. And the reason for that is ... are you ready ... *Human Nature*. The "mistakes" in finance are not really mistakes. They are predictable outcomes induced by social pressures, unquenchable cleverness and great gobs of greed.

How can this cyclic return to stupidity be stopped once and for all? The main requirement, as I see it, is to give humanity a genuine memory. We need a self-sustaining networking protocol that preserves and refreshes (more reliably than with DRAM we hope) the latent wisdom of all the mopes among us who, despite being ordinary humans, have certain modules of profound understanding created by the idiosyncratic circumstances of their lives. We need an institution of choreographed meme-meshing, designed to concentrate and preserve the collective social wisdom according to a deliberate and self-conscious algorithm of sharing. I believe my method, described previously, will do the job. There are assuredly bugs in the model, and certainly incompletenesses, but we need to start somewhere, and we need to start doing something more sensible than the present arrangement.

I see the growing pressure of population and untracked externalities as problems. Our safe paths are narrowing and some future collapse, the demographic equivalent of our current financial crisis, becomes relentlessly more likely. (See Jared Diamond, et al.) The engineering fix is no longer easily available from our wonderfully clever technical insights. That blossom has been picked, or, at least, will eventually stop producing new petals. We need to focus now on social engineering -- social engineering that pays heed to all our dearest values and deepest fears, while allowing us to address reality in ways that cure the obsessive repetition characteristic of our current insanity.

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