If we’re going to have that discussion, guess I’d better do less blabbing and more writing . . . .

So Juan: I have read some of Rosser’s papers in the past, and yes he seems to have some traction on whereof he speaks. I’ll look in on what he has been doing lately. Thanks for the reference.

I would add my own thoughts but they would have more to do with dialectics such as quantity v quality and internal relations, so not sufficiently tight for this discussion.

A reasonable argument can certainly be made, in theory at least, that official leaning against these periods of excess would provide a useful dampening function. The problem, as we’ve seen again and again in the past century, is that those who we would have carry out this mandarin function are themselves only too human.

Not an easy problem to get around.

Ingolf: It is easy to conflate near-term stability in financial markets with their long-term prospects. In the near-term, markets _can be_ fairly stable. In the long-term—say on the order of a generation, call it 25-30 years—these have crashed with such frequency that it is difficult to avoid the conclusion that markets are inherently fragile, if not intrinsically unstable. Oh, when they crash folks put them back together again so it looks like they ‘endure,’ but really the situation is more discontinuous than appearances would have it. I don’t mean that markets crash _totally_, but enough to wipe out many players with major macroeconomic impacts. There are multiple reasons why this appears to be the case; to posit Just a few: a) cumulative concentration, b) over-adaptation to current but impermanent contexts, and c) cumulative connectivity or call it correlation if you prefer. Something I will try to discuss toward the end of this series is that markets which optimize for short-term outcomes may be inherently exposed to mid-term divergences and so optimize themselves _away_ form long-term stability.

I’m not sure how to apply this to the economy. There are plenty of good, easily-measured markers in the economy: money supply; sector volume; sector price per transaction; proportion of debt, savings, and income used to pay expenditures; debt service to income; and many others. Plot charts of Amazon.com stock price and volume, and San Diego house prices and sales volume: you see the same rapid build up that far exceeds the growth of enterprises known to have long-term profitability, followed by the same zig zag decline. The euphoria/panic cycle is unmistakable and easily measured.

The difficulty is that planners at all levels believed that an economy-wide euphoria/panic cycle was impossible. They confused the absence of one in their lifetime with its impossibility. Never having been burned by fire, they believed it a tame servant.

How can you fight that? If Bill Clinton had loaded the Fed with a battalion of Volkers, they would have eventually been vilified and destroyed, and the disaster would have been pushed forward around one generation at the most.

The problem seems immune even to national law. If the decentralized American republic were restored, or even partioned into several new nations, international trade means we would still have had this meltdown. If England, Spain, and China can all get caught in the same euphoria trap, there is probably no stopping it.

Apologies the economists on staff if this is not directly reducible to a number.

Similarly at the file system level, corruption of a single file belonging to the operating system (like a rogue trader at Societe Generale) can bring the whole operating system down in an instant. These human creations are fragile complex systems.