Complex Systems Collapse

So.

We’re not going back to normal, are we? The OBR now reckon we’ll never return to pre-lockdown levels of growth. Their central prediction is that unemployment will be at 12% by the end of the year. This is a complete disaster, and yet I still don’t think people have quite grasped the enormity of the economic impact of the lockdown yet.

I think my economic glass half empty outlook might come from the fact that I’ve never really believed in amelioration in general: amelioration being the idea that, over time, things just generally improve. I‘ve always thought that things are cyclical, whereas there is a general belief in our contemporary society – that we’ve never really shaken off since the enlightenment – that everything will just progress, inevitably, and economic growth will return for ever because it just, erm….. well it just does. So there.

I’ve always thought that there comes a point where, after a peak, stuff just gets worse and worse. This has been re-enforced by having family in Zimbabwe and closely following the news there, and also by growing up being a Welsh rugby supporter.

The thought that I might be becoming a bit of an inaccurate version of Cassandra has of late led me to escape the constant doom and gloom on the news, by returning to my first love (oh alright, second after Marion Ravenwood from Indiana Jones) and start reading archaeology books again. Just to be clear: the fact that I studied archaeology is nothing at all to do with Karen Allen's seminal portrayal of Marion Rav…oh ok yeah, totally is (although I actually gave up on archaeology when I realised that my career would end up in ruins. But I digress).

Turns out this wasn’t the escape I had anticipated: the first book I picked up was on the late Bronze Age collapse (1177 B.C.: The Year Civilization Collapsed by Eric Cline – which I highly recommend).

The late Bronze Age was an incredible period: an amazingly complex world of Minoans, Myceneans, Hittites and Ancient Egyptians that involved international trade agreements, centralised economic systems and a generally extraordinary level of sophistication in writing, art and trade.

Santorini, to take one example, in the late Bronze Age was a city where people lived in three storey houses, with flushing toilets with marble toilet seats, and had hot and cold water piped to their bathrooms. The inhabitants, largely literate, ate food grown thousands of miles away to the north, off pottery plates made thousands of miles to the south, and drank wine grown thousands of miles to the east. They had restaurants, futures markets and theatres. They even had a fire brigade. They were part of an incredibly elaborate network of long-distance exchange and trade, that was the forerunner of today’s globalised world. I went there on holiday a few years ago, and the toilet in the hotel was a hole in the ground, and the hot water was broken, but I think this was down to my parents just liking a bargain.

And here’s the thing: it all collapsed – all of these great civilisations, simultaneously – within the space of about fifty years, around 1,200 B.C. Not only that, but it took centuries for the Mediterranean to reach that level of complexity and sophistication again. The collapse was sudden and violent: cities were abandoned, trade routes were lost and writing died out, all in the space of a few decades, having stood for centuries.

There have been various attempts to explain this: climate change, being the most common explanation – but then there’d always been droughts, earthquakes and climate stress in the region, so why this time?

One of the most compelling explanations is to be found in Complexity Theory.

This essentially places the blame on hyper-interdependence: the systems at the time had become so complex and interdependent, that they became extremely vulnerable to external shocks – you just needed to disturb one part of the system for the whole thing to collapse.

The late Bronze Age was a time of concentrated density functions: in other words, all trade and activity was ultimately run from centralised palaces, and if this palace was, for example, partly destroyed in a fire, or had its food supply disrupted by a local drought: then the entire local economic system around it started to collapse as a result. This collapse led to its trade partners suffering similar shocks, and collapsing in turn.

It ended up with complex state systems failure on a vast scale. This was why it was unprecedented at the time: climate stresses were not new to the Mediterranean, but previously society generally consisted of a patchwork of farms and individual merchants, which was far more resilient to, say, a local earthquake, which only took out part of the system.

Incidentally, this seems to happen every 1,600 years: an identical collapse happened almost exactly 1,600 years later, with the fall of the Western Roman Empire. And the fall of Rome was, erm, 1,600 years ago…

 

Density Functions

Hyper-interdependence internationally has, historically, tended to inevitably end up with state-systems collapse on an inter-continental scale.

Our global financial system is now incredibly densely interconnected, in fact to a scale never seen before and is, therefore, extraordinarily vulnerable as a result: QED the fact that a chap noshing on a bat in China (allegedly) can lead to Oak Furniture Land going bust in Swindon six months later, to take just one random fully-assembled-hardwood-furniture-based example.

 

Zimbabwe Here We Come

Our system in fact could not be more vulnerable. This is why I find the blithe assumption that we can just close everything down for a few months, and re-start it all and it’ll be back to normal in a jiffy pal so bewildering: it really just fucking well won’t. Who knows what we’ve unleashed upon ourselves.

I’m not saying that hyperinflation is necessarily imminent: we could even get deflation in the short term, which central banks fear even more, as they can't print their way out of it. This is as hyper-inflation is not just down to the amount of money in the system, but the velocity of the money itself: the trillions that have been minted and the billions that are now being printed as a result of the lockdown are the kindling on the forest floor, it still needs a spark to set the forest fire off.

That spark could well be in the form of a crisis in confidence: once people lose confidence in, say, the UK government’s ability to pay its debts as a result of the sheer amount of money Rishi Sunak is adding to the pile (the debt to GDP ratio sailed past 100% recently, and it was barely even mentioned…) then we will pass a critical confidence threshold, what physicists call a ‘phase transition’ – and hyper-synchronicity will ensue, ultimately causing hyperinflation. By this I mean that people will lose confidence that their UK fiat-money will buy what they want it to buy, and will spend it as quickly as they can before it loses even more value, and the velocity of money will increase, and then….well, money will become worthless quicker than you’d think. When the panic hits, I’m going to panic-spend it on an actual Fiat, just to be ironic.

This spark - a sudden crisis in confidence causing mass unpredictability - could strike at any moment. Jurassic Park enthusiasts will remember unpredictability in complex systems being described as the “Butterfly Effect” by Jeff Goldblum: the idea that a butterfly flapping its wings in New Mexico can cause a Hurricane in China. And we’ve just let loose about a trillion metaphorical butterflies.

We don’t know when the confidence threshold will be passed (maybe it’s passed already, it’ll take a while to realise) or even which bit of the system being disturbed will lead to the hurricane, but that’s Jeff’s point: you can’t identify the individual butterfly.

You can only prepare for the hurricane.