[FoRK] Scary study on how lack of IPOs is harming US economy

Jeff Bone jbone at place.org
Tue Nov 10 16:16:51 PST 2009


Ken writes:

> I'm particularly interested in your view because our financial  
> systems are, otherwise, so intrinsically linked.

First, I'll observe that the idea that our systems are more (or less)  
intrinsically linked than e.g. the US and any other country, or that  
they are intrinsically linked at all, is suspect.  As just one  
macrostructural example:  the "electronification" of Canadian  
financial markets is perhaps 2-3 years behind the US, and in the US  
that last 2-3 years has been an exponential change curve, so the  
differences are vast and the impedance mismatches enormous.  (This  
doesn't mean you can't catch up or leapfrog, cf. Finland and cell  
phones.)

Those impedance mismatches are "bridged" to a very large degree by the  
very kinds of institutions and systems and economic activities / flows  
that are such popular demons these days.  Presently-contemplated  
attempts (cf. Brown and various others in recent days) to dampen the  
activities of these entities will quite likely have the unintended  
consequence of severing or retarding the increasing interconnectedness  
of the global economic network, "Balkanizing" value and paradoxically  
creating more opportunities for the very economically risky kinds of  
activities such regulation attempts to limit in the first place.  The  
water will flow where it will, and only a global totalitarian regime  
can enforce rules sufficient to prevent this.  So there's only two  
options:  embrace looseness and stigmergy and run with it, or futilely  
attempt to counter it and endure the inevitable consequences --- even  
greater systemic risks.

Second, I'll caution against attempting to draw conclusions from one  
entity and apply them to another when there are log-scale differences  
in various relevant dimensions between the entities, which are  
qualitatively different in the first place.  A bit like concluding  
that since a bee flies by flapping its wings, a human should be able  
to fly by flapping its arms.

A few notes about scale:

	- the absolute size of the Canadian economy is about 1/10th that of  
the US
	- the number of significant entities involved internally is somewhere  
between 1/100th and 1/1000th
	- .: "internal connectivity" of the economic topology is between 4-6  
orders of magnitude less

To see the above merely observe that the number of interconnections in  
a fully-connected network is n^2 in the number of nodes in the network.

It shouldn't be surprising that various network "control" rules that  
work at one level of topological scale can't be expected to apply or  
work well (or even in the same direction, i.e. what works well at one  
scale may well be disastrous at the next order-magnitude) when you  
scale things up by multiple orders of magnitude.  (Similar comments  
only even more mathematically sound (cf. Arrow) apply to scaling  
democratic processes, btw, to tie to another favorite whipping boy of  
mine...)

$0.02,

jb



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