"Wherefore We must interrupt a silence which it would be criminal to prolong, that We may point out...as they really are, men who are badly disguised." Pope St. Pius X, September 8, 1907, Pascendi Dominici Gregis

Thursday, July 12, 2012

Why do lions eat zebras?

This comes up from time to time. A member of the mainstream press will notice that economic systems are a lot like biology. The two share similarities like high and self-organizing complexity. The reporter tries to extrapolate certain lessons for our current economic predicament, such as:

"The growth of modern finance seems to have violated the principle of hierarchical structures, and with gusto....We have created a vast web of interconnections with extreme complexity but little organization. And this does appear to have made the system less resilient."

But consistently they miss the boat. The writer realizes that "unlike organisms, of course, financial systems haven’t undergone evolutionary competition from which only the fit have emerged. We have little reason to expect that what exists would be anything like optimal, or even reasonable." But his solutions offer up more of the same: "To counter these developments, we could try to manage the way lending occurs -- control the amount of leverage used... so as to prevent dangerous contagion. More boldly, we might try to set up constraints on the very concentration of our networks, on who is linked with whom and how strongly."

Is the African savanna well regulated because a committee of lions have decided to arbitrarily place certain restrictions on the existence of other species, or simply because lions have a particular nature suited for their environment? Let's look at that another way: do lions eat zebras because they've figured out it's for the good of the environment or because they taste good?

Certainly lions do not have to sit around and decide that out of all of their potential functions, the best use of their skills is zebra consumption. Unlike humans, lions automatically conform to their nature. It is clear that lions have evolved in such a way that zebra consumption is an inherent part of their nature. Any human who witnessed a lion using its sharp claw to cut down the tall savanna grass, harvesting it and rolling it into a bail for later consumption would find themselves rightfully in a state of curious shock.

Yet it is likely that the very same human, like the author of the Bloomberg article referenced above, would find no surprise at all in allowing politicians to draw up further regulations governing the financial industry arbitrarily, forestalling any kind of natural path towards resolving our economic conundrum. Like the lions whose freedom to eat zebras to their heart's content tends toward equilibrium on the savanna, allowing people the freedom to trade without restriction will allow the "evolutionary competition from which only...fit [institutions] emerge" that is necessary to have a robust, fully-functioning financial system.