The Life And Times Of Your Average Paradigm

Systems are in constant state of flux, they change all of the time, over time, and even when they don't or can't, the environment around them changes in response to their behavior or simple presence.

Systems evolve. The super-systems in which they live, evolve. It's what happens, it is the only thing that can happen. Stuff constantly adjusts its behavior in response to the stuff around it. And things can not help but mess with the things near them. Change is inevitable. But more than that, change has pattern that can be teased out, measured and described.

These patterns are generalizable and can be found in all systems regardless of domain. All systems evolve. All evolution is similar. What Darwin described in biology, once generalized, can just as accurately describe the interaction of gases or the layered persistent structure of ocean currents, or the way I came to these thoughts and decided to write them down.

An interesting aspect of systems is the way they are made up of layers of subsystems each bound by unique structural and behavioral rules, and all of this can exist simultaneously across many dimensions. These 'layered grammars' are perhaps easiest to see in language, where symbols are assembled in ever more complex aggregates (phonemes, words, phrases, sentences, paragraphs, themes, sections, volumes, collections, etc.), each governed by its own rules of construction.  Of course an utterance can be parsed by the layered rules of symbolic grammar (as above) or any other set of layered grammars… take for instance it's semantics or meaning.

But what interests me today is the life span of a system. Though it is problematic to do so, it is often useful to define, at least loosely, the beginning, middle, and end of a system's life span, the arch of its development through time. Individual humans have life spans of course, and from a more distant vantage, so too does a culture, and though the arch of of these classifications hasn't run its course, the human species. From ever wider vantages, one can talk of the stacked life span of hominids, great apes, primates, mammals, chordates, multi-celled animals, eukaryotes, and biota itself.

What interests me here are the patterns can be teased from any life span? More to the point, the patterns that are universal across all life spans. What, for example, is there that can be accurately, and predictively said, of the difference between the first half and the second half of any life span? What is it about the beginning of an individual human's life that is similar to the beginning of the life span of the human species or the beginning of the life span of life itself?

A reasonably robust set of these life span meta-patterns might work well as a way to better define the boundaries that give meaning to the most general concept; "system" ("category", or "thing").

But what I find most valuable about this strategy, is the possibility of predicting the relative age of a system without ever having witnessed the full arch of a life span, as example. Is the system of focus in its infancy, is it a teenager, or is it middle aged, old, or nearly dead? Are there reliable parameters that can be mapped over a system to help us determine such things? I am convinced there are. My confidence in this guess stems from the dramatic symmetries that have been exposed over the past century and a half in the fields of information theory, thermodynamics, classical physics, and quantum dynamics, linguistics, and logic. What this work has exposed is equivalence transforms that show causal connections between energy, mass, time and distance, and importantly, information. This overarching symmetry hints at symmetries in systems themselves and in stacks of systems, and the way systems change through time.

It is this knowledge these profound symmetries, uniting such apparently separate systems, that best describes the most important contributions of the last century of scientific exploration. Wielding this knowledge, we can use the same language and logical tools to examine any system, be it physical, behavioral, or descriptive, or cognitive.

The slippery and ghostly similarities we have noticed across domains, the ones we previously chocked up to metaphor, have been shown in fact to be causal and real (and we have the math to prove it!).

It is frustrating, that the topics I am most interested in, require the assembly of so much preliminary conceptual scaffolding. All these words, and I haven't even gotten to my main point. Here goes.

I talk often of what I call "productivity paradigms". They are ethereal and mercurial economic entities defined by some factor that gives rise to previously unachievable levels of the value of an average hour of labor.

As systems, productivity paradigms should avail themselves to the kinds of 'life span' parsing we would apply to any system. So, we can ask things like: can we determine the relative age of a given productivity paradigm?

And, is it possible to can we know this from the rising or falling rate of growth resulting from that paradigm?

Are these questions, addressed as I have, to a subset of systems, or are all systems productivity paradigms, making my questions universally applicable? Is there such a thing as a non-productivity paradigm? Can a system ever become a system if it doesn't follow some sort of life-span arch? Is productivity, as I suspect it is, a perquisite for the existence and persistence of a system?

Lets assume it is. Now what? How can we extend this assumption in order to acquire something salient to say about a system?

If It Doesn't Scale, It Isn't A Solution

[note: this post is a work in progress]

You've met the private school freaks. They can't believe anyone would put their kids in a public school. What with all of the riffraff, the minority students, the dropout rates, the low performance on standardized tests, the poor state of school grounds and facilities, the struggle for funding for special programs like music, art, and sports, the lack of emphasis on college preparation, etc. Man, look at that list! Those are some strong and obvious arguments against public school education. Or are they?

What people who advocate private or limited solutions fail to calculate is what I call the "boutique effect". If for instance, there isn't enough money in a culture to give everyone a rich and safe childhood and education, it is absolutely expectable that those who are given those resources will excel (at least when compared to the scores of the less fortunate masses).

However, there is a real societal cost to exceptionality, and this goes to my "solutions that don't scale" thesis. With regard to exclusive schools for the rich, that cost has to do with the fact that the parents of rich kids just happen also to be the people with the most political and economic influence. When their kids are not part of the public education system, neither is their protective passion, experience, knowledge… or influence. They don't care about public education. Why should they? Their kids are not dependent upon it.

From another angle, when money goes to elite institutions, it is not being put where it is needed the most. Rich kids already live in information-ally rich environments. Rich kids are already live in safe and calm environments where learning works. Rich kids are much more likely to have direct access to positive role models… their environment is chock full of success stories. Rich kids are not as likely to live in families broken apart by drugs and prison terms and gang deaths and violence and people struggling with a second language or a culture that is not in step with the larger population. Rich kids have educated parents around them who can help them with their homework! Rich kids can afford to think about learning and succeeding, their world is devoid of the concentration-destroying stresses that poor kids deal with all day long.

And the whole reason people can get richer in this country than they can anywhere else, is because our population is more competitive (or used to be) than every other country. Why? Because we did this obscenely radical thing 150 years ago, we decided that everyone had a right to a publicly funded education! Educated people build factories and high tech energy delivery systems, they build transportation systems and are more likely to participate in advancements and the types of change that increase productivity. Productivity is the key. If you can get more value, more product, out of the average hour worked by your population, you can produce more wealth. Education is the radical difference that gave America its high per/hour, per/person productivity, it is why the rich are rich and why they can afford to borrow from the equity that is american productive wealth, even though that borrowing actually destroys wealth on a national scale in the process.

But these are not factors that have anything to do with a valid comparison of private education vs. public education. These are strictly socio-economic factors. The problem is when desperate parents look at the performance divide that exists between public and private schools and concludes that public schools should do exactly what private schools do. Private schools could be significantly worse than public schools and still produce higher test scores, more college acceptances, fewer drop outs, and lower crime rates. All of the intangibles work in their favor. In fact, it is often true that private schools employ teachers with less education and training than their public school counterparts.

Private school programs tend to spend less time on basic subjects (math, reading, etc.) and get better results! That is why they can spend a higher percentage of their student's time on extra-curricular activities (music, art, sports, theater, community projects, etc.). Obviously, if a public school would fail if it decided that it should therefore shorten the instructional time devoted to math and reading. Private exclusive schooling is not a solution that scales. It is obvious that it is a solution that only works for a very small percentage of the population of a society, and that it works only at the expense of the whole country as a whole. There are lots of examples out there of countries with very good exclusive education systems and very very very poor economies embedded within extremely unstable social chaos dominated by poverty. Most central African nations play this game, Myanmar, The United Arab Emeritus, South Africa (before apartheid was upended), Iran, North Korea, Brunei, etc, etc, etc. Exclusivity is the norm in the poorest nations on Earth. If exclusivity worked, these would be the most productive nations.

Lets look at China. Until recently, from a strictly financial perspective, China has done all of wrong things, it has restricted entrepreneurship, it has restricted credit, it has promoted an exclusively top-down decision and influence structure… everything that works against the kinds of fluid business environment that are attributable to a growing and healthy post industrial economy. And yet… and yet, despite all of these huge shortcomings and mistakes, China succeeds like no other country. Why, because it has spent an inordinate percentage of its wealth on its public education system. China's people are well educated by any global standards. Not some of its people. Not the exclusive elite. Everyone. And given China's huge population, that is a lot of educated people to compete en-mass with the rest of the world. When they finally turn the last capitalist stone, when they finally create a legal structure to support personal liberty, property ownership, and unfettered personal expression, watch out! Even without these capitalist standards, China reaps such benefits from its non-exclusive infrastructural investments. Meanwhile, those of us in the west have all but forgotten which factors really matter, and which, in comparison, are just fluff.

But, if you happen to live in a nation that has paid attention to productivity, has produced wealth as a result of a fair and solid infrastructure (transportation, energy, safety, medicine, credit, agriculture, justice, and education… for everyone!), you can play the exclusive game in limited numbers, even though it destroys wealth on a national scale.

Now let's switch gears. Inoculation. How did inoculation get to be such hotbed of superstitious thought? Inoculations have been blamed for hyper-activity, for cancer, for Asperger, and MS, for Attention Deficit Disorder, even for AIDS, etc. What inoculations are never blamed for is the one thing they are most definitely and unequivocally guilty of… preventing pandemic spread of disease! But inoculation programs only work when a certain minimum threshold of the population participate. Each vaccine (/disease combination) has its own special number… correlating to a specific minimum percentage of the population that must be inoculated. If a smaller slice of the population are given the vaccine, an outbreak is certain. When a parent makes the decision not to get their kid vaccinated, what they are really doing is passing the responsibility and risk (if there is any) to the kids who do get vaccinated. They reap the rewords but pay none of the price!

This is a great example of a solution that doesn't scale. While the vast majority of parents accept the shared responsibility a few parents can get by without inoculating their kids. It is a solution. But it isn't a solution that scales. Obviously, it doesn't work if everyone chooses this solution. It doesn't even work if more than a few choose not to inoculate. This type of solution only works because others are not choosing to shirk their share of the responsibility (and risk). In fact, if more and more people choose the non-solution option, there will become a point where everyone will suffer, even those who did take the vaccine. Most of these vaccines only work when the exposure to the pathogen is very low level. If a pandemic took hold, and if many people got really sick, high concentrations of the pathogen could overwhelm the immune resistance afforded through inoculations.

Any of this remind you of the "libertarian" platform? It should. The libertarian program is the very definition of a solution that doesn't scale.

[more to come…]

Randall Reetz

A Plan To Re-Invigorate Long-Term Capital Markets

Human behavior favors the immediate. Nobody willingly chooses to wait when an option allows instant or near-term gratification. This tendency naturally results in imbalanced systems. The recent investment market crash is evidence of what happens when short-term behavior is at odds with the medium and long term needs of a healthy economy.

To make matters worse, our tools evolve naturally in directions that mimic human proclivities, catalyzing the very natural and human obsession with the immediate. As investment securities markets are more and more influenced by and accelerated through the use of automation technologies (the computer and global communication networks), they trend naturally towards an over-valuation of short-run returns and under value long-run returns. Even if traders or fund managers start off with long-range, future-looking, wide-perspective goals, the competitive pressures placed on them simply for sharing trading facilities with companies that make money by trading on shorter and shorter time frames forces them towards similar behavior. When you are competing for money, and that money is changing hands in shorter and shorter cycles, money available for long range investments and the types of businesses and infrastructure plays becomes scarce. You either join the race towards the immediate, or you go without.

However, a thriving economy absolutely depends upon the continuous and long-range capitalization that actively supports basic science and the steady infrastructure improvements that build, promote, and maintain complex supply chains that constantly evolve towards greater productivity.

Though a healthy and vibrant economy profoundly depends upon capital fluidity, upon responsiveness to investment demand, the recent trifecta of market boom/bust cycles (energy, dot-com, and real estate securitization) has shown that revenue schemes that do nothing more than move money around can exert too much influence on the entire market landscape that shapes our national and international economies.

Three times in a row we have witnessed first-hand how second tier capitalization (business that make their money by repackaging investment risk) tend to quickly and fatally overwhelm the total investment market. These securitization schemes do better in the short term than standard capital markets because the value they trade is not directly tied to the success of the actual businesses and infrastructures that they capitalize. In market competition for investment dollars, abstraction schemes provide an artificial advantage that is impossible for real businesses to overcome.

If investors have the option of making a quick bet against market stability, an option that is not in and of itself dependent upon actual consumer or business to business demand for actual product or service, of course the capital will follow the quick and the fake over the slow and the real. This is a natural and predictable attribute of the behavior of capital markets.

So what is to be done?

There are many potential solutions and solution categories. Greater regulation of markets. Tariffs and taxes that are then redirected through government advisory boards that seek to determine the areas of funding that will have the greatest impact on future productivity. New kinds of markets and financial products that somehow reword long range investments. Public education directed towards society-wide changes in social morality and long range responsibility to future technologies and infrastructures. Switching to a benevolent dictatorship and appointing exactly the right leader with exactly the right understanding of productivity building economic mechanisms, and the will to make it so. Each of these options has deep potential for failure. Most are simply impossible or entirely romantic.

After some thinking, I came up with a plan that just might work.

Lets say the government set a Target Average Investment Period (TAIP). This TAIP (for sake of argument, lets say it is set at 'two years') would be the time delay before any investment you make could be evaluated, cashed in, or traded. It is an "Average" because you can make any number of investments but the average duration of your securities each time you invest has to be at least as long as the current TAIP setting. Some algorithm or official committee (Fed Board?) sets the value of the TAIP at some set interval (every year?) or, as is true of the Fed Rate, whenever the governing body decides the economy demands an adjustment.

In practice, what it means is this: If you purchase a thousand dollars in 1 year stock (one year 'less' than 2 year TAIP) you must offset this purchase with investments worth at least one thousand dollars in a 3 year stock (1 year 'more' than the current TAIP). An investor can offset securities purchases with periods shorter than the TAIP with any combination of investments longer than the TAIP so long as the total average of all purchases made at that time is equal to or greater than the the current TAIP setting.

In this way, securities are not simply tied to a company or fund or product, but also to the duration of the investment. If you want to partake in microsecond trading, cool, just as long as you offset those short run investments with an investments of equal value at the opposite end of the TAIP.

You don't just buy IBM, you buy IBM at duration. An investor can choose any combination of purchases (all of IBM or short term in IBM and long term in Intel). Alternatively, financial entities can be as creative as they want to be in designing investments products so long as the end result conforms to the current TAIP setting.

The government would fine-tune the TAIP the way it now fine-tunes the prime lending rate. Hell, if it works like I think it will, this adjustment will be more important and more reliable than prime rate manipulation.

Mostly, this scheme has the benefit of promoting the types of long-range investments that a strictly free market tends away from. And, it does so without restricting short range trades or the full range of trading period fluidity or investment products.

Randall Reetz

Viewing Our Open Economy Throgh A Closed Economy Lookingglass

And have an idea. Plot the ratio of the total number of dollars in the stock market vs. the total number of dollars in the US economy sans the market (all over the same 100 year history).

My guess is that there have been spikes in this stock vs. M. ratio that correspond with new money entering the market, either shifted from other domestic segments (real-estate, retirement accounts, etc.) or from international influx of investments (rapidly rising wealth of Asia and rest of world, sudden collapse of a large industry, commodity, or governmental or regional stability). Very few of standard economic metrics measure true macro or global interaction between geo-scale segments.

Comparing the Dow Jones against itself over time, or rarely, against other metrics like the GDP is different than reifying this and other comparisons as named metrics in and of themselves. But completely missing is geo-scale metrics that track the shifting values across regions and segments, in effect treating economic entities as markets competing for the maximum percentage of the total global value or geo-M.

What I am getting to is some way to accurately read the total global M and total labor L and total energy use E and to track the motion in real time of the density of these values geographically, or geopolitically, or by production or consumption segment. Once a true global economic sandbox tracker/simulator has been built, we will have the ability to read the economy as it is, in real time, and find the factors that sit at the base of the actual influence hierarchy that drives and causes economic flux.

My suspicion is that actual economic growth is equivalent to, always and only the result of increases in the means and use of tools and infrastructure that can build more for less labor... productivity, and that, in the absence of true growth in productivity, a market responds through acts of trickery which are ultimately not supportable and always culminate in crashes or "adjustments" which tend to pull market values into closer alignment with actual M and productivity values.

When new money comes into a market, standard supply and demand metrics are no longer accurate predictors or models. When new money comes into a market, standard supply and demand metrics will tend to say that the value of a product has risen. In a closed system this evaluation would most often be accurate In an open system, where money can stream into a market not to chase a product for consumption or industry, but just because that market seems a more attractive place in which to speculate than others, it throws the whole system into instability. Producers under such conditions are want to make more shoes, even though people are not growing more feet or walking more holes into their souls. End-consumers begin at inflationary times like these, to speculate with their purchases, buying products and commodities not because they need them, but because it seems foolish not to. Products and commodities take on a currency-like property, and through over-valuation supersaturate the market... leading to an inevitable value crash. If a large enough percentage of an economy's value has been suckered into such a bubble, the crash will bleed over into the economy as a whole... hitting the financial and banking markets first and hardest.

Over the past two decades, three fundamental factors have made large markets in the west especially sensitive and vulnerable to these new-money boom/crash cycles.

First, the undeveloped economies of the world have experienced exponential growth as they adopt tools and infrastructures borrowed from the first world. Importantly, because the third and second world represented the vast majority of the world's population and geography, this explosion in wealth (though still on average only bringing the third world slightly out of poverty) began to represent (by shear size) a larger and larger segment of the global economy. Remember that this "rest of world" economy represents roughly six times the population of the first world. Even smallish changes to a segment of this relative multiple have huge effect on the total global economy. And the actual changes have not been small. Second and third world economies have absolutely exploded! Much of this new money has of course been reinvested into the local economies from which it sprung. But, increasingly, larger and larger chunks of this new money have gone searching for boutique markets like the New York Stock Exchange and its equivalent in Japan, Germany, England, France, and the EU.

The second factor has to do with the paucity of true growth in productivity experienced in western and first world economies during this same twenty or thirty year period. In post-industrial economies, regions that have secure and constant access to reliable transportation of goods and services (shipping, highway, rail, and air transport), ready and secure capital (through investment banking and business and consumer credit), private property ownership (as a means to secure capitalization), education (to steadily feed highly skilled workers into labor markets), and governments that protect and promote the well being and promote the success of their citizens en-mass, and who have built a dependable infrastructure to create, extract, and distribute energy, and the means to grow and process foods cheaply on industrial scales... these rare segments of global marketplace... have had these capabilities for some forty years. Excepting of course for incremental gains made in efficiency of the above systems as a result of new knowledge and tools that result from better understanding of nature through advances in the sciences productivity has largely leveled off and remained level for the better part of a quarter century. What of the computer? you say. Surely the computer and the World Wide Web have had a huge positive impact on first world economies. But interestingly, the net net economic effect of computation and the digital networks it creates, has been surpassingly neutral. We do pump a larger and larger percentage of first world moneys into computation and its infrastructure that consume and use computers.

Real productivity metrics have yet to precipitate outward from the large success of computing as a market and into the larger first world economy. Ironically, the computer industry's success in the west may have impacted second and third world economies the most. It may be that money made in the computing industry flowed more deeply and directly into the rest of world economies where much of the computer industry does its manufacturing, assembly, and customer support. That computing has not resulted in measurable increases in first world productivity has computer industry insiders scratching their heads. During the Dot Com boom, pro-industry annalists creatively sidestepped this uncomfortable truth by inventing the idea of a "new economy" or "cyber economy", famously proclaiming, "The old rules and metrics don't apply". They were wrong, in the short term, but maybe, just maybe, in the long term they will be correct.

I suspect that the true economic benefits or potential benefits caused by the computer and computing upon global productivity have yet to be realized. The computer industry has spent the last 30 years largely learning how to get computers to do what we did (though slower and more awkwardly) before we had computers (writing, printing, telephony, accounting, payroll, data processing, advertising, point of purchase, audio and video broadcast, mathematics, graphing, market tracking and trading, banking, news and reporting, information sharing, post and mail, libraries, process control, etc.). This conversion has been expensive, and time consuming. Much of the time, we have proceeded as an industry (and a society) without a clear goal. Let me restate; neither the computing industry or the consuming public has had a clear idea where computing has been or ought to be going. Much of the time, both industry and market have been happy just to see what new (old) thing the computer can be taught to do... blindly building and consuming our way into the future just because it is "cool" or "fun" or "neat" or adds some strange and intoxicating "immediacy" to our daily lives (even when that immediacy does not equate effectiveness or lead us to deeper and more efficient infrastructure's necessary to cause the kinds of profound increases in productivity we expect from new technology paradigms).

I am a big believer in the future of computing, or the future that computing could build towards, but this belief is contingent upon society getting to a deep clarity of understanding about what computing is and why it matters. We have got to work hard at determining the difference between that which is cool and that which is profound. That which we want and that which will change the world. Until then, we are simply designing and producing towards consumption which will make segments of the industry rich and will bring money from the consuming west into emerging economies, but it will not ultimately support real growth, the kind of growth that is supported by knowledge, tools, and infrastructure that have the capacity to catapult productivity to the next level (the way the tractor pulled plow, germ theory, general education, the steam engine, and electricity have done in the past).

[to be continued...]