I’ve always been rather suspicious of economics. All of the technical vocabulary and the pretty graphs often appear to be nothing more than a smokescreen, a method of obscuring the fact that economics is fundamentally about people – people who are rarely the ‘rational actors’ that many economic models try to pretend that they are. Self delusion and groupthink are, I think, a little tricky to parameterise.
What I’m finding interesting about the ongoing ‘credit crunch’, however, is that one of the human foibles that seems to be amongst its root causes is more than a little…familiar, at least to this scientist. It’s the mistaken belief that being able to label and superficially describe something means that you fully understand it. This is especially true when you’re dealing with systems and phenomena which far exceed in scope and complexity those which our poor little ape brains have evolved to cope with. Think about geological time. When we’re talking about the history of the planet, it’s easy enough for geologists to talk about tens, hundreds, thousands of millions of years; but at a certain level, we only rarely, and with much effort, make the imaginative leap required to really, truly grasp what such lengths of time actually mean. That’s not a criticism, it’s a simple acknowledgment that our thinking organ is tuned to comprehend considerably smaller timescales: the next meal, the next sunset, the next winter. Superficially, geologists can get quite comfortable dealing with the millions and billions, but there’s a certain detachment there, which can lead to problems when considering the consequences of having such vast lengths of time to play with. To our human sensibilities, catastrophic earthquakes or volcanic eruptions are rare, once-in-a-lifetime calamities, but within the realms of Deep Time, such events are commonplace; even saying that large asteroid impacts are ‘rare’ is probably inaccurate. Tectonic motions at speeds of centimetres a year seem ‘slow’ to human experience – our fingernails grow at a comparable rate – but when stretched over millions of years, such speeds allow continents to circumnavigate the earth, and entire mountain ranges to rise and fall in the relative blink of any eye. Our instincts and our “common sense” are both ill prepared to grapple with large numbers, and systems with thousands of independent, moving parts.
Going back to the credit crunch, it seems to me that we are seeing the fall-out from a comparable gap in comprehension. The scope and complexity of the modern global economy is certainly far beyond what most people can instinctively understand. Just before everything started falling apart, investment bankers were tossing around millions and billions of dollars’ worth of imaginary money in the form of weird derivatives. Did they really understand the amounts they were playing with, and the potential consequences of what they were doing with it? More recent events would suggest that they did not, leading them to completely underestimate the risks involved in ‘credit default swaps’ and ‘leveraging’. For how can you properly assess the risk when you don’t really understand what you’re risking? Worse, the blithe and cheery confidence that we did understand, and thus could keep everything under control, allowed the bubble to grow to epic proportions, sucking in people and livelihoods well beyond Wall Street or the Square Mile, before it finally popped.
The cost of intellectual hubris in the academic world is of course much lower – the rise and fall of theories may boost or shred individual scientists’ reputations, but it’s not going to nuke the bank balances of the common man. But the solution remains the same: if you are going to deal with the large and the complex, they should be faced with a certain amount of humility. Often our understanding is tenuous and far from being instinctive; forgetting that can easily lead people astray, scientists and investment bankers alike.
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