There's a really interesting article in the latest issue of Portfolio that suggests that the latest economic downturn wasn't an unpredictable black swan – but rather that we're using the wrong tools (and wrong people) to try to detect it.

A small but growing cadre of scientists are arguing that our current crisis was in fact predictable and that the technology exists to make sure that it won’t happen again. The problem may be that we’ve used only economists to try to solve our economic predicaments. Instead, the solution may be found by physicists and other scientists accustomed to studying complex systems.

To anticipate the next crisis and find our way out of this one, we may have to cast off economic and financial dogma and adopt ideas inspired by physics and other natural sciences, disciplines in which the notion of unstable and unpredictable systems is nothing new. For instance, the technology now exists to go beyond economics to build a massive, complete computer model of the modern economy, from the corner store to the city bank and the Federal Reserve.

With such a model, physicists would be able to track changes in the economy dynamically. There have even been calls for an ambitious effort akin to the Manhattan Project, which built the atomic bomb, to bring the most sophisticated mathematics and computer modeling to bear on managing the world’s economies more aggressively than has ever been attempted.

It's clear that our economic woes are in part because of increasingly complex and intertwined. Bailouts are necessary simply because the death of a single (even small) corporation (which is what I and most other "true capitalists" might prefer) can have a dramatic ripple effect on the rest of the ecosystem.

On that note, I can't think of a system more complex and intertwined than nature; it will be interesting to see how science can be applied to this other "unpredictable and complex" system.


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