Wednesday, September 10, 2008



Welcome to my blog on economics.

By now it should be pretty obvious that our global economy is going down for a reboot a'la 1929.

It should be just as obvious that our political masters and their experts don't really have a clue about why or how this is happening. I'm sure that many of us now suspect that their clue-less-ness is a major factor in the build-up and collapse of the system.

So what exactly is happening?

Whilst the economy is a mind-bendingly complex system that spans humanity and even simple descriptions of it are complex,
the simplest analogy to demonstrate what's happening is that of an avalanche. Some economic event has triggered a collapse of confidence and this is now cascading down. Right at the moment everyone is focussing on the event(s) that are triggering this avalanche, without understanding the underlying forces at work.

However it is the underlying forces that are the problem, not the triggers. It's sort of like blaming the avalanche on the one particular loud noise that set it off rather than acknowledging that the snow had built up to the point where it was going to collapse from any loud noise.

"Yeah yeah so what" I hear you all saying - but it's this reverse way of thinking, in which we mistake the effect for the cause, that is actually at the heart of the problem. Our whole view of the economy is based on this way of thinking and the connection with reality is that confidence has collapsed because we are starting to realise that what we thought was the cause was actually just a symptom of many deeper underlying problems.

You will see what I mean over the next few weeks as our economy collapses regardless of government/business intervention. If my understanding of the system is correct, then I would say that our economy has already collapsed - don't forget avalanches don't start at the top of the mountain, they start nearer the bottom. By the time you see the snow moving it's too late.

However, as if this weren't enough, our environment is also close to a point of collapse too. Over the last 500 years we have done immense damage to this planet. Just in the 40 years I've been on it, it has changed beyond recognition. I won't go into the litany of destruction we have visited upon our planet - by now it should be well known. What is less well known is the connection between the economy and environmental destruction. This connection can be simply stated as "when you have an economic system in which every transaction destroys some aspect of the environment, then you have an economic system that will eventually kill all life on this planet" - no ifs, no buts, no maybes - it is actually pretty simple math...

Before you disagree with that statement, I'd ask you to try and think of any economic transaction that does not negatively impact on the environment. Every dollar you spend, in some way, destroys a bit of your environment. So using economics to repair the environment is a bit like trying to trade your way out of insolvency by selling lots of things, but making a loss on each thing you sell.

So how do we fix this horrible mess we have created?

The first thing is to realise the true nature of our economy and to create a science that reflects that reality - after all you cannot fix a problem you don't understand.

And that is what this blog's all about - discovering the Science of Integrated Economics and creating a computer model that is capable of simulating social and economic theories and measuring their impact on the system as a whole. A lot of our problems stem from the fact that we do not have a credible science of economics and thus we cannot refute idealogues and their half-baked faith-based theories (like economic rationalism).

Now most people think that the economy is about share-markets, industry. products and such, however its' roots go much deeper and in reality it is intimately connected to society and the environment/ecology.

In reality, the economy is not so much the tip of the iceberg as the inner most system of a host of similarly nested systems, with each system being a product of its host system.

To be more precise:

The environment contains the ecology.
The ecology contains human society.
Human society contains market economics.

Now each of these systems (environment, ecology, society and economics) are highly complex systems in their own right, with their own rules, behaviours and properties. They can be unified and nested into one model by the simple expedient of realising that the complete system is essentially an energy storage system.

Energy radiated by the sun is absorbed, converted and stored by plants, which is then absorbed, converted and stored by animals, including us, and we in turn convert and store this energy into a symoblic form of energy called money and create another energy system using this symbolic energy.

These 2 concepts (nesting and energy) allow a model to be constructed in which the correct relationships and transactions can occur.

In the next instalment I shall explore the sub-systems and the various relationships and transactions both within and between them.