Ares
6th October 2013, 08:57 AM
From Cascading Complexity To Systemic Collapse: A Walk Thru "Society's Equivalent Of A Heart Attack"
Over a year ago, FEASTA's David Korowicz stunned the world with his fascinating analysis titled "Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse," in which he shone a much needed light on the "weakest link" choke points of modern hyper-complex society: a forensic investigation into a "Minsky Moment" thought experiment gone wrong, one crossing the systemic instability threshold, and culminating with society, economics and the modern world as we know it grinding to a halt and worse.
Since Korowicz' analysis is precisely the terminal outcome that awaits the world caught in a state of relentless denial that even refuses to contemplate "Plan B", what we said then is that "everyone who wishes to know what will happen unless everyone is aware of what may happen" should read said study in global systemic collapse. Before proceeding further, we urge all readers who are fascinated by the topic of crossing thresholds of social, systemic instability to read the original analysis if they have not done so already.
The original paper led to an eruption in opinions and responses both on the pages of Zero Hedge and elsewhere, to an issue that has chronically received virtually no media attention (for obvious confidence preserving reasons in a world in which centrally-planned ignorance confidence is bliss), we are delighted to present Korowicz's follow up, "Catastrophic Shocks through Complex Socio-Economic Systems—A Pandemic Perspective" which "provides an overview of the effect of a major pandemic on the operation of complex socio-economic systems using some simple models. It discusses the links between initial pandemic absenteeism and supply-chain contagion, and the evolution and rate of shock propagation. It discusses systemic collapse and the difficulties of re-booting socio-economic systems."
In a way that only Korowicz can, the author summarizes the increasingly more precarious state of systemic social equilibria, and how a more determined push away from a trendline (or back toward mean reversion as those who can see right through the central banks increasing desperation to preserve the world's legacy status quo "just one more day") could result in the end of modern society.
To wit: "The commonalities of global integration mean that diverse hazards may lead to common shock consequences. The systems that transmit shocks are also the systems we depend upon for our welfare and the operation of businesses, institutions and society, so to borrow Marshal McLuhan’s phrase, the medium is the message. One of the primary consequences of a generic shock is an interruption in the flow of goods and services in the economy. This has diverse and profound implications - including food security crises’, business shut-downs, critical infrastructure risks and social crises. This can in turn quickly destroy forward-looking confidence in an economy with major consequences for financial and monetary stability which depend ultimately on the collateral of real economic production. More generally it can entail multi-network and delocalised cascading failure leading to a collapse in societal complexity."
What follows is a "thought experimental" methodology which is used to look at the socio-economic implications of a major pandemic. In other words, a step by step walk through of how society transitions from its unstable current equilibrium state, one represented by the highest level of socio/economic/monetary entropy, to society's equivalent of a heart attack: a straight line collapse in social entropy once parametric thresholds are breached, leading to failure and halt of any and every process reliant on incremental, evolutionary complexity. It is here that epistemological assumptions about society's future can simply and subjectively be reduced to simple heuristics: "optimism" and "pessimism." The former holds that even in a complete systemic collapse, the system can eventually regroup and eventually return to its most recent, highest level of complexity. The latter.... does not.
This is how Korowicz frames it:
We imagine that after a pandemic wave people are again available for work. But people cannot however become productive immediately because other inputs are also needed. But those inputs are stalled because they rely upon other inputs and so on. More broadly we may define Recursion failure as: “the inability of a complex economy to easily resume production and trade after a significant collapse because in a complex and interdependent economy, production and trade must resume in order for production and trade to resume”.
Further even if a government wanted to rebuild, it may be too complex to orchestrate resumption from the top down. This is firstly because the economy has evolved by self-organization, nobody has ever had, nor could they have put its elements together in the first place. Secondly, even if it could be done, the systems of command, control and supply that might do it would be the very systems that had been undermined.
Over time entropy would become an issue as engines rust, reagents become contaminated, and expected maintenance and repairs are left undone. This would all add to the cost and inputs needed for resumption. In a more complex society the degradation rate may be higher for thermodynamic reasons.
Overall, we are saying the longer a socio-economic system spends in the critical regime, the more likely it is to undergo a complete systemic collapse and loss of basic function. In addition, the longer it spends in this state, the more difficult it may be to ever return to its pre-pandemic state.
This is a complex society’s equivalent of a heart attack. When a person has a heart attack, there is a brief period during which CPR can revive the person. But beyond a certain point when there has been cascading failure in co-dependent life support systems, the person cannot be revived. This means that the socio-economic system could be changed irretrievably and the job of society and government would be to both manage the crisis and plot a fundamentally different path.
The extent of our contemporary complex global system dependencies, and our habituation to a long period of broadly stable economic and complexity growth means a systemic collapse would present profound and existential challenges.
It is precisely this inevitable final denouement, and the fact that its mere contemplation simply acknowledges there is nothing society can do to prepare for a terminal outcome, which is why modern society is replete with pre-ordained distractions that seek to prevent the vast majority to contemplate a narrative in any way resembling the one above, and why nobody is willing to admit the contemplation of a "Plan B" as even merely the fact that "very serious people" - those whose actions have resulted in the current precarious systemic environment- are thinking about the "what if" potentiality, sets off events in motion that culminate with the entire system ultimately crashing under its own complexity.
Which, of course, is precisely why we present the full piece as everyone should be aware of what the absolutely worst case outcome may and will look like in a world in which sticking one's head in the sand has become a religion.
Catastrophic Shocks Through Complex Socio-Economic Systems: A Pandemic Perspective (pdf), source FEASTA
David Korowicz
Summary
The globalised economy has become more complex (connectivity, interdependence, and speed), de-localized, with increasing concentration within critical systems. This has made us all more vulnerable to systemic shocks. This paper provides an overview of the effect of a major pandemic on the operation of complex socio-economic systems using some simple models. It discusses the links between initial pandemic absenteeism and supply-chain contagion, and the evolution and rate of shock propagation. It discusses systemic collapse and the difficulties of re-booting socio-economic systems.
1. A New Age of Risk
Consider the following scenarios:
A highly contagious pandemic outbreak in South-East Asia (of comparable or greater human impact than the 1918 influenza outbreak).
A disorderly break-up of the Eurozone and global financial system implosion.
A ‘perfect storm’- during a time of major global financial instability - there are terrorist attacks on North African oil installations (partially driven by social unrest arising from record food prices) & a category 5 hurricane hits a major population/ industrial/ oil producing regions of the US east coast.
These are all examples of potential global shocks, that is hazards that could drive fast and severe cascading impacts mediated through global systems. Global systems include telecommunications networks; financial and banking networks; trade networks; and critical infrastructure networks. These systems are themselves highly interdependent and together form part of the globalised economy. The interest in global shocks and how they manifest themselves has grown in recent years (WEF 2012, 2013; Helbing 2013,; Buldyrev et. al. 2010).
First it useful to acknowledge that the hazards referred to in the opening scenarios are increasingly likely. Potentially new pandemic strains are being encouraged by increasing human pressure on the biosphere, while mass global air transport could aid rapid global transmission. Ecological constraints, presently pre-eminent amongst them are food and oil flows and increasingly the effects of climate change are growing. Stresses in the credit backing of our financial and monetary systems are arguably increasing, with the additional vulnerability that such systems are the primary vector through which major ecological constraints in energy and food would be expressed (Korowicz 2011).
One of the primary issues for this paper are, given any significant hazard, how does the impact spread through the globalised economy and in what way are we vulnerable to the failure of interconnected systems. To answer this we need to understand how complex societies are connected and how they have changed over time.
The globalised economy is an example of a complex adaptive system that dynamically links people, goods, factories, services, institutions and commodities across the globe. Such systems can be represented by a‘state’ that is not in equilibrium, but defines a set of ordered characteristics that exist within a range of deviations from a mean and persist for a period of time. For example, the state is characterized by exponential growth in Gross World Product of about 3.5% per annum over nearly 200 years within a range of several percentage points. This had correlated with emergent and self-organizing growth in socio-economic complexity which is reflected in the growth of the:
Number of interacting parts (nodes): This includes exponential population growth; the 50,000+ different items available in Wal-Mart; the 6 billion+ digitally connected devices; the number of cars, factories, power plants, mines an so on.
Number of linkages (edges): This includes the 3 billion passengers traveling between 4000 airports on over 50 million flights each year; the 60,000 cargo ships moving between 5000 ports with about a million ship movements a year; the average number of media channels (internet sites, TV channels, twitter feeds) per person times the population; and the billions of daily financial transactions.
Levels of interdependence between nodes: The growing number of inputs necessary to make a good, service, livelihood, infrastructural output or the function of society as a whole.
The speed of processes (or time compression):This includes the increasing speed of financial transactions; transportation; digital signaling; and Just-In-Time logistics. If we consider the globalised economy as a form of singular organism, we can understand this process as an increasing metabolic rate.
Efficiency: increasing competition and global trade arbitrage driving down inventories; and globalised economies of scale.
Concentration: The emergence of ‘hubs’ within the globalised economy- a small number of very highly connected nodes whose function (or loss of function) have a disproportionate role in the operation of the globalised economy . For example, banks are not connected at random to other banks, rather a very small number of large banks are highly connected with lots of other banks, who have few connections to each other. These arrangements are sometimes known as scale-free networks. We can also see concentration in critical infrastructure, and trade networks.
De-localization: The conditions of personal welfare; business or service output; or country’s economic output is smeared over the whole globalised economy. The corollary is that if there is a major failure of the systems integration in the globalised economy, a localised community may have extreme difficulties meeting its basic needs.
Economic and complexity growth have in many ways reduced risk. Localized agricultural failure once risked famine in isolated subsistence communities, but now such risk is spread globally. It has made critical infrastructure such as sewage treatment and clean water available and affordable. Global financial markets enable an array of risks, from home insurance and pensions to default risk and export credit insurance, to be dispersed and potential volatility reduced. Indeed, what is remarkable is just how reliable our complex society is given the number of time sensitive inter-connections.
Another way of saying all this is that our society is very resilient, within certain bounds, to a huge range interruptions in the flow of goods and services. Within those bounds our society is self-stabilizing. For example supply-chain shocks from the Japanese tsunami in 2011, the eruption of the Icelandic Eyjafjallajokull volcano in 2010 or the UK fuel blockades in 2000 all had severe localised effects in addition to shutting down some factories across the world as supply-chains were interrupted. However the impacts did not spread and amplify, and normal functioning of the local economy quickly resumed.
But we know from many complex systems in nature and society that a system can rapidly shift from onestate to another as a threshold is crossed (Scheffer 2009). One way a state shift can occur is when a shock drives the system out of its stability bounds. The form of those stability bounds can increase or decrease resilience to shocks depending upon whether the system is already stressed prior to the shock.
The commonalities of global integration mean that diverse hazards may lead to common shock consequences. The systems that transmit shocks are also the systems we depend upon for our welfare and the operation of businesses, institutions and society, so to borrow Marshal McLuhan’s phrase, the medium is the message. One of the primary consequences of a generic shock is an interruption in the flow of goods and services in the economy. This has diverse and profound implications - including food security crises’, business shut-downs, critical infrastructure risks and social crises. This can in turn quickly destroy forward-looking confidence in an economy with major consequences for financial and monetary stability which depend ultimately on the collateral of real economic production. More generally it can entail multi-network and de-localised cascading failure leading to a collapse in societal complexity.
Previously the dynamics of such a scenario was studied when the initial shock was caused by a systemic banking collapse and monetary shock. This coupled the exchange of goods and services causing financial system supply-chain cross contagion and a re-enforcing cascade of de-localizing multi-system risk (Korowicz 2012).
In this paper a similar methodology is used to look at the socio-economic implications of a major pandemic. After a very brief review of other researchers work (section 2), some real life examples of partial systems failure are reviewed (section 3). This allows us to make make some estimates of shock spreading rates. In section 4 the links between pandemic absenteeism and supply-chain contagion is discussed and related to societal complexity. In section 5 we look at how contagion spreads, the rate, and the relationship to complexity.
In section 6 we look at some of the multi-system interactions. In 7, we look at why after a major collapse, the pre-shock socio-economic state may not be recoverable. Finally there is a short conclusion. This paper aims to broadly outline how very simple models can shed light on catastrophic shocks in complex socio-economic systems. A significantly more detailed discussion on several issues may be found here,(Korowicz 2012).
Over a year ago, FEASTA's David Korowicz stunned the world with his fascinating analysis titled "Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse," in which he shone a much needed light on the "weakest link" choke points of modern hyper-complex society: a forensic investigation into a "Minsky Moment" thought experiment gone wrong, one crossing the systemic instability threshold, and culminating with society, economics and the modern world as we know it grinding to a halt and worse.
Since Korowicz' analysis is precisely the terminal outcome that awaits the world caught in a state of relentless denial that even refuses to contemplate "Plan B", what we said then is that "everyone who wishes to know what will happen unless everyone is aware of what may happen" should read said study in global systemic collapse. Before proceeding further, we urge all readers who are fascinated by the topic of crossing thresholds of social, systemic instability to read the original analysis if they have not done so already.
The original paper led to an eruption in opinions and responses both on the pages of Zero Hedge and elsewhere, to an issue that has chronically received virtually no media attention (for obvious confidence preserving reasons in a world in which centrally-planned ignorance confidence is bliss), we are delighted to present Korowicz's follow up, "Catastrophic Shocks through Complex Socio-Economic Systems—A Pandemic Perspective" which "provides an overview of the effect of a major pandemic on the operation of complex socio-economic systems using some simple models. It discusses the links between initial pandemic absenteeism and supply-chain contagion, and the evolution and rate of shock propagation. It discusses systemic collapse and the difficulties of re-booting socio-economic systems."
In a way that only Korowicz can, the author summarizes the increasingly more precarious state of systemic social equilibria, and how a more determined push away from a trendline (or back toward mean reversion as those who can see right through the central banks increasing desperation to preserve the world's legacy status quo "just one more day") could result in the end of modern society.
To wit: "The commonalities of global integration mean that diverse hazards may lead to common shock consequences. The systems that transmit shocks are also the systems we depend upon for our welfare and the operation of businesses, institutions and society, so to borrow Marshal McLuhan’s phrase, the medium is the message. One of the primary consequences of a generic shock is an interruption in the flow of goods and services in the economy. This has diverse and profound implications - including food security crises’, business shut-downs, critical infrastructure risks and social crises. This can in turn quickly destroy forward-looking confidence in an economy with major consequences for financial and monetary stability which depend ultimately on the collateral of real economic production. More generally it can entail multi-network and delocalised cascading failure leading to a collapse in societal complexity."
What follows is a "thought experimental" methodology which is used to look at the socio-economic implications of a major pandemic. In other words, a step by step walk through of how society transitions from its unstable current equilibrium state, one represented by the highest level of socio/economic/monetary entropy, to society's equivalent of a heart attack: a straight line collapse in social entropy once parametric thresholds are breached, leading to failure and halt of any and every process reliant on incremental, evolutionary complexity. It is here that epistemological assumptions about society's future can simply and subjectively be reduced to simple heuristics: "optimism" and "pessimism." The former holds that even in a complete systemic collapse, the system can eventually regroup and eventually return to its most recent, highest level of complexity. The latter.... does not.
This is how Korowicz frames it:
We imagine that after a pandemic wave people are again available for work. But people cannot however become productive immediately because other inputs are also needed. But those inputs are stalled because they rely upon other inputs and so on. More broadly we may define Recursion failure as: “the inability of a complex economy to easily resume production and trade after a significant collapse because in a complex and interdependent economy, production and trade must resume in order for production and trade to resume”.
Further even if a government wanted to rebuild, it may be too complex to orchestrate resumption from the top down. This is firstly because the economy has evolved by self-organization, nobody has ever had, nor could they have put its elements together in the first place. Secondly, even if it could be done, the systems of command, control and supply that might do it would be the very systems that had been undermined.
Over time entropy would become an issue as engines rust, reagents become contaminated, and expected maintenance and repairs are left undone. This would all add to the cost and inputs needed for resumption. In a more complex society the degradation rate may be higher for thermodynamic reasons.
Overall, we are saying the longer a socio-economic system spends in the critical regime, the more likely it is to undergo a complete systemic collapse and loss of basic function. In addition, the longer it spends in this state, the more difficult it may be to ever return to its pre-pandemic state.
This is a complex society’s equivalent of a heart attack. When a person has a heart attack, there is a brief period during which CPR can revive the person. But beyond a certain point when there has been cascading failure in co-dependent life support systems, the person cannot be revived. This means that the socio-economic system could be changed irretrievably and the job of society and government would be to both manage the crisis and plot a fundamentally different path.
The extent of our contemporary complex global system dependencies, and our habituation to a long period of broadly stable economic and complexity growth means a systemic collapse would present profound and existential challenges.
It is precisely this inevitable final denouement, and the fact that its mere contemplation simply acknowledges there is nothing society can do to prepare for a terminal outcome, which is why modern society is replete with pre-ordained distractions that seek to prevent the vast majority to contemplate a narrative in any way resembling the one above, and why nobody is willing to admit the contemplation of a "Plan B" as even merely the fact that "very serious people" - those whose actions have resulted in the current precarious systemic environment- are thinking about the "what if" potentiality, sets off events in motion that culminate with the entire system ultimately crashing under its own complexity.
Which, of course, is precisely why we present the full piece as everyone should be aware of what the absolutely worst case outcome may and will look like in a world in which sticking one's head in the sand has become a religion.
Catastrophic Shocks Through Complex Socio-Economic Systems: A Pandemic Perspective (pdf), source FEASTA
David Korowicz
Summary
The globalised economy has become more complex (connectivity, interdependence, and speed), de-localized, with increasing concentration within critical systems. This has made us all more vulnerable to systemic shocks. This paper provides an overview of the effect of a major pandemic on the operation of complex socio-economic systems using some simple models. It discusses the links between initial pandemic absenteeism and supply-chain contagion, and the evolution and rate of shock propagation. It discusses systemic collapse and the difficulties of re-booting socio-economic systems.
1. A New Age of Risk
Consider the following scenarios:
A highly contagious pandemic outbreak in South-East Asia (of comparable or greater human impact than the 1918 influenza outbreak).
A disorderly break-up of the Eurozone and global financial system implosion.
A ‘perfect storm’- during a time of major global financial instability - there are terrorist attacks on North African oil installations (partially driven by social unrest arising from record food prices) & a category 5 hurricane hits a major population/ industrial/ oil producing regions of the US east coast.
These are all examples of potential global shocks, that is hazards that could drive fast and severe cascading impacts mediated through global systems. Global systems include telecommunications networks; financial and banking networks; trade networks; and critical infrastructure networks. These systems are themselves highly interdependent and together form part of the globalised economy. The interest in global shocks and how they manifest themselves has grown in recent years (WEF 2012, 2013; Helbing 2013,; Buldyrev et. al. 2010).
First it useful to acknowledge that the hazards referred to in the opening scenarios are increasingly likely. Potentially new pandemic strains are being encouraged by increasing human pressure on the biosphere, while mass global air transport could aid rapid global transmission. Ecological constraints, presently pre-eminent amongst them are food and oil flows and increasingly the effects of climate change are growing. Stresses in the credit backing of our financial and monetary systems are arguably increasing, with the additional vulnerability that such systems are the primary vector through which major ecological constraints in energy and food would be expressed (Korowicz 2011).
One of the primary issues for this paper are, given any significant hazard, how does the impact spread through the globalised economy and in what way are we vulnerable to the failure of interconnected systems. To answer this we need to understand how complex societies are connected and how they have changed over time.
The globalised economy is an example of a complex adaptive system that dynamically links people, goods, factories, services, institutions and commodities across the globe. Such systems can be represented by a‘state’ that is not in equilibrium, but defines a set of ordered characteristics that exist within a range of deviations from a mean and persist for a period of time. For example, the state is characterized by exponential growth in Gross World Product of about 3.5% per annum over nearly 200 years within a range of several percentage points. This had correlated with emergent and self-organizing growth in socio-economic complexity which is reflected in the growth of the:
Number of interacting parts (nodes): This includes exponential population growth; the 50,000+ different items available in Wal-Mart; the 6 billion+ digitally connected devices; the number of cars, factories, power plants, mines an so on.
Number of linkages (edges): This includes the 3 billion passengers traveling between 4000 airports on over 50 million flights each year; the 60,000 cargo ships moving between 5000 ports with about a million ship movements a year; the average number of media channels (internet sites, TV channels, twitter feeds) per person times the population; and the billions of daily financial transactions.
Levels of interdependence between nodes: The growing number of inputs necessary to make a good, service, livelihood, infrastructural output or the function of society as a whole.
The speed of processes (or time compression):This includes the increasing speed of financial transactions; transportation; digital signaling; and Just-In-Time logistics. If we consider the globalised economy as a form of singular organism, we can understand this process as an increasing metabolic rate.
Efficiency: increasing competition and global trade arbitrage driving down inventories; and globalised economies of scale.
Concentration: The emergence of ‘hubs’ within the globalised economy- a small number of very highly connected nodes whose function (or loss of function) have a disproportionate role in the operation of the globalised economy . For example, banks are not connected at random to other banks, rather a very small number of large banks are highly connected with lots of other banks, who have few connections to each other. These arrangements are sometimes known as scale-free networks. We can also see concentration in critical infrastructure, and trade networks.
De-localization: The conditions of personal welfare; business or service output; or country’s economic output is smeared over the whole globalised economy. The corollary is that if there is a major failure of the systems integration in the globalised economy, a localised community may have extreme difficulties meeting its basic needs.
Economic and complexity growth have in many ways reduced risk. Localized agricultural failure once risked famine in isolated subsistence communities, but now such risk is spread globally. It has made critical infrastructure such as sewage treatment and clean water available and affordable. Global financial markets enable an array of risks, from home insurance and pensions to default risk and export credit insurance, to be dispersed and potential volatility reduced. Indeed, what is remarkable is just how reliable our complex society is given the number of time sensitive inter-connections.
Another way of saying all this is that our society is very resilient, within certain bounds, to a huge range interruptions in the flow of goods and services. Within those bounds our society is self-stabilizing. For example supply-chain shocks from the Japanese tsunami in 2011, the eruption of the Icelandic Eyjafjallajokull volcano in 2010 or the UK fuel blockades in 2000 all had severe localised effects in addition to shutting down some factories across the world as supply-chains were interrupted. However the impacts did not spread and amplify, and normal functioning of the local economy quickly resumed.
But we know from many complex systems in nature and society that a system can rapidly shift from onestate to another as a threshold is crossed (Scheffer 2009). One way a state shift can occur is when a shock drives the system out of its stability bounds. The form of those stability bounds can increase or decrease resilience to shocks depending upon whether the system is already stressed prior to the shock.
The commonalities of global integration mean that diverse hazards may lead to common shock consequences. The systems that transmit shocks are also the systems we depend upon for our welfare and the operation of businesses, institutions and society, so to borrow Marshal McLuhan’s phrase, the medium is the message. One of the primary consequences of a generic shock is an interruption in the flow of goods and services in the economy. This has diverse and profound implications - including food security crises’, business shut-downs, critical infrastructure risks and social crises. This can in turn quickly destroy forward-looking confidence in an economy with major consequences for financial and monetary stability which depend ultimately on the collateral of real economic production. More generally it can entail multi-network and de-localised cascading failure leading to a collapse in societal complexity.
Previously the dynamics of such a scenario was studied when the initial shock was caused by a systemic banking collapse and monetary shock. This coupled the exchange of goods and services causing financial system supply-chain cross contagion and a re-enforcing cascade of de-localizing multi-system risk (Korowicz 2012).
In this paper a similar methodology is used to look at the socio-economic implications of a major pandemic. After a very brief review of other researchers work (section 2), some real life examples of partial systems failure are reviewed (section 3). This allows us to make make some estimates of shock spreading rates. In section 4 the links between pandemic absenteeism and supply-chain contagion is discussed and related to societal complexity. In section 5 we look at how contagion spreads, the rate, and the relationship to complexity.
In section 6 we look at some of the multi-system interactions. In 7, we look at why after a major collapse, the pre-shock socio-economic state may not be recoverable. Finally there is a short conclusion. This paper aims to broadly outline how very simple models can shed light on catastrophic shocks in complex socio-economic systems. A significantly more detailed discussion on several issues may be found here,(Korowicz 2012).