Systems Thinking

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In the Systems Thinking group on  LinkedIn, someone posed a simple question.

“Can systems thinking (ST) answer a simple question: ...what is the underlying cause of the current economic crisis?"

So far it has earned over two hundred fifty comments. A number of them are critical of markets. Some threads have a odd progressive and distinct socialist tone. Here are some system thinking views of economic cycles of the Network Singularity.

The systems thinking discipline starts with asking the correct question. A narrative is developed. What is known always to the systems thinker, as a predicate, is the knowledge of the system is imperfect and highly contextual.

Appreciative Inquiry is among the methods that may be used to start the activity of defining the question. It is essential to arrive at some notion of the outcomes of the system too.

All system thinkers know, “All models are wrong, some are useful.” (George Box)

As such, it would inform us that this question is incorrect.

"...what is the underlying cause of the current economic crisis?"

First, from a ST perspective, a recession it is not a crisis. Crisis is from the Greek root meaning ‘turning point in a disease’. Contemporary meaning is “…a stage in a sequence of events at which the trend of all future events is determined.”





(BTW, the turmoil in the failing state of Greece is likely to be a crisis for Greeks and the failure of their entitlement-based economic society.)

Furthermore, by claiming it is ‘current’ tells us systems thinkers there have been past crises and, more importantly, there will be future so called crises. To a bona fide systems thinker, this is simply a behavior of the system. It is a property. It is not a crisis. It is an interesting and notable characteristic of the system. Period.

In addition, the fundamental ST point is that networks, markets and economics are complex adaptive systems. They are, by definition, unpredictable. For example, boom and bust cycles are normal and required properties of markets.

Newsflash: there will be future recessions with 100% confidence. Some will have greater amplitude than others. There will also be future boom cycles with 100% confidence. They will have greater amplitude than others. It is how the system works. The outcome is broad growth and prosperity for civil society.

Remember: recession propels prosperity.

Look at the insane US auto bailouts a generation ago? Now, use this link to look at Detroit today.

http://www.kevinbauman.com/100abandonedhouses/

The failure of Detroit is deeper and more complete than anyone could imagine. Fiat owns Chrysler and the US govt owns GM. Detroit is a comprehensive disaster due to govt intervention.

Bailouts disrupt normal economic cycles. They are not a good idea. Bailouts perpetuate and deepen grave economic problems (see Detroit). Never let ‘the perfect be the enemy of the good.’ (Voltaire)

Trying to control the natural cycles and behavior of complex systems is futile. Do we control the weather? Do we control flocks of bird? Blooms of algae? Embryology? No.  It is important to embrace and serve complexity. Systems thinking aids understanding.

Don’t try and control the uncontrollable like complex, open, free economic systems. That’s been tried – it is called socialism, communism, statism, basically, planned economies. Not only does it not work, it creates widespread war, violence and death. Centralism kills.

Trying to determine ‘underlying causes’ is not really systems thinking either. Systems thinking is about outcomes. For this case, for economic systems, it is far better to understand resilience than to control cause and effect.

Thus, this may be a better question.

“Could systems thinking be instrumental in smoothing future economic cycles?”

The answer, of course, is a strong yes. For example, an important step is to reintroduce risk where it currently does not exist. Govt, a non-risk agency, must be entirely removed from the equation. The notion of ‘too big to fail,’ bogus backstops, phony bailouts, etc., must be eliminated. Executive comp must have a major downside risk. Risk/reward is the only way the economic system model can operate efficiently, it smoothes the peak-to-peak cycles, and create resilience and favorable outcomes.

Quite to the contrary, more govt control and intervention and greater and greater absence of risk greatly exacerbates the amplitude of economic cycles.





Black Swan Theory is noteworthy reference. Here are some of the principles for creating resiliency.

• Nothing should ever become Too Big to Fail.
• No socialization of losses.
• Governments do NOT "restore confidence".
• Do not give an addict more drugs.
• Break eggs to make an omelet.

Systems thinking is effective to understand complex social systems like economic cycles. It can aid developing resiliency. Interventionism, or other attempts to control complex systems, just do not work.

Finally, for mastery of systems thinking, recall and live the famous remark by French aviator and author Antoine de Saint-Exupéry, “…perfection is attained not when no more can be added, but when nothing more may be be removed.”







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