IS THERE ANY LAW OF NATURE BEHIND THE FINANCIAL
CRISIS OF 2008-2009?
Overview of INTRODUCTION TO PATTERN CHEMISTRY
by Yuri Tarnopolsky
Pattern chemistry is an attempt to answer the question:
What is so different about human matters, including history, politics, economy, etc., as compared with subjects of natural sciences?
That was, in essence, the question asked by George Soros in his “The Alchemy of Finance” and subsequent publications on “reflexivity.” The roots of the question are as old as science and philosophy.
The INTRODUCTION is written in an idiosyncratic form and is anything but a “theory.” The author of the INTRODUCTION is a chemist (Ph.D.)—neither economist, nor philosopher, neither investor, nor (currently) university professor—who has been closely watching historical global changes since 1956, first from communist Russia and, since 1987, from capitalist America, including the progress in both sciences and humanities where the author was quite amphibious. The financial crisis and election campaign of 2008-2009 were especially stimulating for the “generalized chemistry” project, started back in 1979, and they speeded it up to conclusion.
Pattern chemistry is based on (1) ideas of Pattern Theory developed by Ulf Grenander and (2) generalization of some fundamental concepts of chemistry, in particular, the concept of transition state.
The concept of pattern has been in circulation in both sciences and humanities since Plato. Although outside Pattern Theory it is one of most evasive notions, pattern always implies a kind of “invariance” or “regularity” which appears in a range of different objects. What distinguishes the author’s approach from other studies is that he considers patterns not within a certain discipline or field of study, for example, patterns of history, language, behavior, in image recognition, etc., but across the interdisciplinary borders. Obviously, this makes little academic sense.
The central object of pattern chemistry is exystem: evolving complex system for which the unpredictable novelty is the main property of interest. A typical—and the largest—exystem is economy, which today includes all spheres of human activity and incorporates not only art, science, technology, markets, finances, ideology, religion, education, politics, family, etc., but also the fate of all living organisms on earth, climate, mineral resources, and large scale trends of human civilization.
We do not—and cannot— know the future even in the case of the financial markets, although they are studied as an academic discipline and involve a large number of bright thinkers, some rewarded by the Nobel Prize. We know only possible alternatives and scenarios, never complete and never consensual. It is the fact of the matter that although some economists had unambiguously warned about the inevitable danger, their predictions made no impression on either politicians, or institutions, or public. On the contrary, the election of Barack Obama was something no serious person could predict before well into the campaign. The story of global warming is up for the next case study.
A striking feature of the financial crisis is that it has been generated by the very economic strategies employed to prevent it and insure against the loss. One may also notice that the global policy of the United States, for decades strategically aimed at the stabilization of the world, had exactly the opposite effect of deep destabilization—after a long successful period.
The question addressed in INTRODUCTION TO PATTERN CHEMISTRY is formulated as follows:
If we cannot fully know the future and cannot predict the exystemic event because it is irreversible and happens only once, how far can we still look into the future and what can we still know about it with certainty?
The hypothetical answer is that patterns, unlike configurations “covered” by them, can have a relatively long term validity, but at the price of high generality and abstractness, even bordering with triviality. In order to extract the scant but reliable and important information, we must generalize the principles of natural sciences as much as possible, so that they would be applicable to both physical and human matters. Patterns, unlike equations, thrive in both sciences and humanities because they are basic and universal forms of human understanding.
For example, we should probably speak about instability instead of energy, event—with the beginning and the end—instead of process, inequality of distribution instead of entropy, waste instead of heat, and a measure of fluctuations instead of temperature. In addition, we should abandon the use of the concept of probability for non-repetitive events and incomplete (open) event spaces. The improbable event has no probability. Thermodynamics applies only to well defined systems, while the future is the least defined and the description of the present exystem is always incomplete. Moreover, we should abandon all absolute estimates and monitor only the trend in terms of MORE and LESS. Finally, we should regard an event as a triad of consecutive stable initial, unstable transition, and stable final states, which is the typically chemical approach to the phenomenon of change.
Without going into further details, the financial crisis, for example, is the result of wealth concentration and inequality of income distribution. This opinion alone does not require any pattern theory or pattern chemistry. It has already been expressed by some analysts and looks quite commonsense. The question is: can we find any law of nature behind the unfortunate turn of events? Or is it just a bad luck? Or somebody’s malice? Or is it indeed unfortunate?
In author’s opinion, it is exactly the law of nature, human or otherwise, that any inequality of distribution of the resource of generalized energy, whether in calories or in dollars, is synonymous with the overall instability of the exystem. It follows not from any scientific or pseudo-scientific theory, but from the way we use the basic axiomatic concepts which could not be defined other than in a circular way through each other. Energy is the best example of an axiomatic notion.
The stability of the social system cannot be an ultimate goal because the ultra-stable system cannot evolve and adapt to external and spontaneous internal changes. It can only undergo a radical change exemplified by the empires and dictatorships of the distant and recent past. Yet the uncontrolled and unrestricted growth of concentration of wealth and power, whether globally or nationally, will inadvertently increase exystemic instability. This is all we can know about the future, but whether we should resist or resign to any particular trend, no law of nature can say. If we understand that we deal with a law of nature and not a passing accident, and if we understand the few fundamental alternatives, then our choice can be truly intelligent.