Tulips, Traffic Jams, and Tempests (Part 1): An Introduction to Complexity

In the early 1600s, during the Dutch Golden Age, tulips—a flower which had been introduced to Europe less than a century before—had become a status symbol, a luxury item coveted by all who wanted to flaunt their wealth.  At the same time, the Dutch were busy inventing modern financial instruments.  This became a dangerous combination when, in the mid-1630s, speculators entered the tulip market and futures prices on tulip bulbs—a durable commodity, given their longevity—began to skyrocket.  At its peak, in early 1637, single bulbs of the most coveted varietals traded for prices 10-15 times the annual salary of a skilled craftsman (roughly the equivalent of $500,000 to $800,000 today).  Even common varietals could sell for double or triple such a craftsman’s salary.  And then, in February 1637, almost overnight, prices dropped by 99.9999%, the market collapsed, the contracts were never honored, and tulip trading effectively stopped.  It’s generally considered the first recorded example of a speculative bubble.  For centuries, theorists have argued various explanations, from outside forces (a bubonic plague outbreak led traders to avoid a routine auction in Haarlem), to rational markets (prices matching demand and never separating wildly from the intrinsic value of the commodity), to legal changes in the futures and options market about the structure of contracts (meaning futures buyers would no longer be obligated to honor the full contract).  The Tulip Mania is one of the most famous stories in economics, and no one really knows why it happened in the first place.

Driving home from work, I (and probably most of you) often notice a curious phenomenon, which most of us just take for granted at this point.  Every evening at rush hour, my commute slows down.  Even when there’s no accident blocking a lane or two, even when the on-ramps are metered to ensure there aren’t dozens of cars trying to merge into the lane at once, even when there’s no dangerous weather, even when everyone is theoretically trying to get home as fast as they safely can, the cars around me on the highway are moving well below the speed limit.  We call this phenomenon “congestion” or a “traffic jam,” and everyone has just learned to deal with it.  Scientists have tried to model traffic for decades, with everything from fluid dynamics to phase theory.  Economists have likened it to “tragedy of the commons” models.  But no one has been able to produce a good mathematical model that matches empirical observations and can explain where it comes from in the first place in the absence of external triggering events.

Every summer, when the water in the north Atlantic is warm enough, and the winds are just right, and the atmospheric pressure is just right, sometimes—about a dozen times a year between June and November—a storm that, at any other time would remain just a storm, picks up speed and begins cyclonic motion.  And if the conditions are just right (and no one is quite sure what “just right” means), that cyclone will develop into a hurricane.  These massive tempests are to the original storm what the Great Chicago Fire was to the lantern that first lit the flames.  While the normal storm would have made some people wet and maybe knocked some trees over, hurricanes can cause widespread death and destruction among whatever’s in their paths, whether it’s fishing villages in the Caribbean or the New Orleans metropolis.  And, much like the Tulip Mania or traffic jams, while scientists have gotten reasonably good at identifying risk factors, no one is really sure what causes an ordinary storm to become a hurricane.  It requires the perfect combination of the right factors in the right place at the right time.  We can identify the (mostly) necessary conditions, but even when all of them are present, often a hurricane never appears.  Sometimes one appears even when they aren’t all there.  And yet, despite this apparent randomness, it happens like clockwork, a dozen or so times a year in the same six month timeframe.

Why do we care?  What do Dutch tulip markets, highway congestion, and tropical cyclones have in common?  The answer is all are natural features of what we call “complex” systems.  In this series of articles, we’ll look at what complex systems are and how they differ from complicated systems.  Markets, urban commutes, and weather patterns are all examples of different types of complex systems, and sometimes complex systems inherently exhibit unpredictable, wild, seemingly inexplicable behavior like bubbles and crashes, congestion and slowdowns, and out of control feedback loops.  Not because anyone wants them, or because they design for them, or they screwed up and designed the system badly.  But because that’s the nature of complexity.

Complexity is a difficult term to define, even though it’s been widely used in various scientific disciplines for decades.  In the next article of this series we’ll look at the defining characteristics of a complex system.  But for now, we’ll stick to the broad overview.  Complexity is the state in which the components of a system interact in multiple ways and produce “emergence,” or an end state greater than the sum of its parts.  Cars, buses, a multi-lane highway, public transportation, on- and off-ramps, surface streets, traffic lights, pedestrians, and so on are the components of the system.  They all interact in many different ways in a densely interconnected and interdependent system—what happens in one area can have wide-ranging affects across multiple areas of the system as a whole.  And thus, even though everyone hates traffic jams and everyone just wants to get home as efficiently as possible, the traffic jam nonetheless appears, like clockwork, every evening at rush hour.  Congestion is an emergent property of the commuting system.  It is more than the sum of its parts, completely different that the pieces making it up, the cars and the roads and so on.  That’s complexity, in a nutshell.

Contrast this to the other major type of systems, which we call “simple” and “complicated.”  A simple system is something like a simple machine.  A pendulum is a simple system.  A lever is a simple system.  In these, the system is the sum of its parts.  It allows us to do things we could not do without the system, but it is additive.  There are limited interactions, and they operate by well-defined rules.  A complicated system is just the extension of this, composed of many simple systems linked together.  Whereas the defining feature of a complex system is interconnectivity, a complicated system is defined by layers.  Hierarchical systems like military organizations are complicated systems: they may be very difficult to work through and figure out what goes where, but when you figure it out, you can see all the relationships and know what effects an action in one area will have elsewhere.  Many engineering problems deal with complicated systems, and thus humans have become quite skilled at understanding these types of systems: we use mathematical tools like differential equations and Boolean logic, and can distill the system into its essential components, which allows us to manipulate the system and solve problems.  It may be difficult and take an awful lot of math and ingenuity, but at the end of the day, the problems are solvable with such tools.

Complex problems, however, are not solvable with the traditional tools we use to address complicated systems, because by their very nature they work in fundamentally different ways.  As I already mentioned, they are defined not by the components and layers, but by the interconnectivity and interdependency of those components.  The connections matter more than the pieces that are connected, because those connections allow for emergent properties greater than the sum of the parts.  They allow for butterfly effects and feedback loops and inexplicable changes.  Complex systems are not all the same—complexity can occur in deterministic physical systems like weather patterns and ocean currents, or in nondeterministic social systems like ecosystems and commodities markets and traffic patterns, and even in deterministic virtual systems like computer simulations.  Because, again, what matters for complexity is the connectivity, not the components.

And because complex problems are not solvable with the tools we use to solve complicated problems, we often get unexpected results, causing even worse problems despite our best intentions.  This fundamental misunderstanding of how complex systems work has led to everything from inner city gridlock to economic collapse.  Researchers have only been studying complexity for about three decades now, but it has revolutionized understanding in fields ranging from computer science and physics to economics and climatology.  It’s amazing what you can do when you start asking the right questions.

In the next article, we’ll look at the characteristics of complex systems and a couple different types of them.  Then we’ll look at the tools we use to understand them.  And finally, since I’m an economist and this is my blog, we’ll look at the relatively new field of complexity economics and try to understand some the lessons learned about how markets actually work.

The Age of Hype

“We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.”

Chuck Palahniuk, Fight Club

Objectively, most of the major fights faced in 2017, on any major front, seem trivial.

ISIS is not an existential threat to the United States, the way Nazi Germany and the Soviet Union once were. Even the Russian security state struggles to do much beyond exert their influence in spheres they once had locked down and now are content to compete in.

On the front of civil rights, we’ve moved into an increasingly nebulous area of oppression vs. oppressors, where the oppression in question is… use of a bathroom? Who can use racial slurs? Perhaps the most hyped up one, Police killings of minorities, is best emblematic of this — the actual amount of unarmed people killed by police is exceptionally low for a nation of 320 million people.

Economically, we’re told American manufacturing is dying (despite an all-time high output in manufacturing products), we’re told the banks control everything in a way they never have before (which must be quite mirthful to the ghost of J. P. Morgan), and we’re told that ruin and bankruptcy are imminent on all fronts.

Politically, we’re quick to portray our political opponents as traitors, enemies, sycophants of foes far worse. A quick tour of political-leaning Facebook pages will find you a great host of people content to believe that Democrats are tools of radical socialism — or that Republicans are the tools of the far right in a way that suggests an American Reich is imminent.  Blood on the streets is coming any day now, because Youtube videos of Black Bloc Anarchists mixing it up with guys in MAGA hats have told us so.

What these issues all have in common, though, is that they’re all blown way out of proportion.

This isn’t to say that none of these are legitimate problems — excepting the accusations of widespread traitors among American politicians, most of these are very real problems.

But they’re not the colossal struggle that was World War II, or the American Civil Rights movement of the 1960s.

Good luck suggesting that to folks with strong opinions on this.

The US has a long tradition of the cult of the rebel — it’s in our national DNA and our very founding was an act of rebellion. It’s therefore unsurprising that so many Americans like to cast themselves as noble rebels against an evil empire — a common thread from burnt-out hippies to anti-government militias to Alex Jones to Bill Maher. When that’s overlayed with this overplayed sense of urgency, though, there is a very real problem that is only starting to emerge.

As anyone who’s taken a driving course can tell you, overcorrection is often just as fatal as not correcting. We’re entering an age of McCarthyism — everyone is a secret enemy in some way — they’re complicit in climate change, they’re racist or sexist, they’re authoritarian, they’re out to take your money and rip you off. The palettes differ from political affiliation to political affiliation, but the underlying trend is there.

Perhaps more disturbingly on the macro, and nearly unprecedented in history, it has become difficult to differentiate between what issues are important and what issues are not.

Imagine, for a second, that you are a Congressional Representative. It is completely conceivable, on a daily basis, that you will receive calls, letters, and requests on, at minimum, five broadstrokes issues: the economy, foreign policy, social policy, government accountability, and campaign promises. Each of these may have twenty or thirty different facets, and many tie together.

How do you prioritize? Can you prioritize? If half of your district is writing about healthcare while the other half is writing you about their taxes being too high and you’ve got a campaign promise about bringing back the Lockheed Plant that you can only get done if your pals in Arkansas get their new Army Reserve Training Center in this year’s defense budget, how do you spend your day? And that’s to say nothing about the recent fear over a recent mass shooting in your state, the impending budget decisions that your party whip expects you to back even though you know that your two biggest donors are completely against several of the provisions…

It’s no surprise that Americans have a low impression of Congress. With so many narratives out there, each thinking it’s top billing, everyone feels marginalized by the government.

The kicker is, the government is, honest to God, doing the best it humanly can given the circumstances. While this line might invite snark from libertarians and anarchists, it is worth considering that it is hard to imagine a form of government that could conceivably use the time of one Congressional session to solve the American healthcare crisis, defeat ISIS, fix immigration (either through reform or better security), make the military more efficient, expand LGBT rights while respecting religious rights, confront automation-displacement, solve economic anxiety, reduce the gap between the rich and the poor, enforce existing environmental law, enhance American education, etc., etc. It is truly a Herculean set of tasks, and empirically more than most previous governments had to oversee.

Our founders planned for a decentralized system, with many of these issues being solved closest to home. Federalism is still the best way to deal with such a problem. What’s concerning, however, is that for many Americans, they are no longer interested in a decentralized approach, especially as it pertains to the president.

Consider that Donald Trump was elected partially on the idea that he would reduce the McCarthyist hydra that is modern political correctness — this, on its face, seems reasonable to want to confront.

But how on Earth would a president be able to confront prevailing social trends? Sure, JFK may be partially responsible for America giving up the hat as a daily wear item, but Presidents generally are not trendsetters or people who adjust the social temperature of the nation. They are executives presiding over the government.

But to those who believe political correctness is an existential threat, it seems reasonable to bank as much as they can on as many different approaches as possible — elect an anti-PC president, force anti-PC legislation through congress, whine about it on Facebook to their friends so everyone knows about the great threat of PC. But consider that any time spent jousting at this windmill is time that is not spent confronting one of the other many problems that other voters prize over this. That drags their confidence down, and this idea that the President is expected to impact it drags the overall national opinion of the President down. That’s not including any partisan backlash from taking one side or another.

So this odd situation presents itself, where the president and congress are attempting to do as the voters asked — but if it’s not quick enough, not executed perfectly, then fickle public opinion turns against the very thing that was requested, and before it can be repealed, the American Voter is already demanding something new (after all, he’s besieged on all sides by supposedly existential threats).

So voters get burnt out. They despair. Their problems are ignored. Their doom is imminent. They turn to drugs or alcohol. They disengage. No one, they think, understands them or cares about them.

The Palahniuk quote at the beginning summarizes their plight well.

Where I struggle is that I don’t have an answer on how to fix, or reduce this. I’m not sure it will be. Post-modern politics looks to continue indefinitely into the future, and only get worse as more problems pile up, each hyped up to be the next World War II, the next Civil Rights movement.

In an era of choosing your own narrative with all evidence being somehow equal, it is a dark time to be an empiricist.

Note: This post was originally published at Philip S. Bolger’s Medium page.  It is reprinted with his permission.
https://medium.com/@philip.s.bolger/the-age-of-hype-48e0466d6379#.gbt334yus