Dissolving Structural Certainty
2014-03-12
Physical structures are very real. In addition, there are other constructs invented by us to help us along, because we make them do so. But what if increasingly that isn't half the story? Our world is increasingly make-believe? That real time is a lot more dynamic than the artificial constructs forced on it by us?
We are inclined to manufacture mental constructs and give them a physical certainty that may once have been a good approximation of reality, but no longer today as things change so fast that the term 'structure' may no longer be true when what we tangle with are rapidly changing forms and contexts that are anything but fixed.
A brick wall is not something that can dissolve. Perhaps become weathered over time, developing cracks, in parts losing its mortar, yes by all means. But still physically immovable.
Such rocklike certainty can be observed even in very old structures, like Greek or Roman columns, English or French castles, Italian villas.
Economies supposedly have structure because they are based in reality. So we describe a geographical reality when looking at rivers and agricultural land, and the location of cities and mines, and the infrastructure linking and serving them - roads, railways, electricity grids, communication towers, oil and gas pipelines, water supply.
Then there is the labour force, consuming households, and business producers making and consuming stuff and banks and finance companies financing the whole thing that is an economy.
So far, so good. These are all physical entities that you can't reason away.
But then we went a step further and started imagining things. We looked at the whole picture, its various components, called it an economy that produces, earns, consumes, finances and invests so much in a given year, and started treating this as if a fixed piece of land, a brick wall, a structure always there in time, spewing forth its produce and riches, unchangingly over time.
So structure, something you can feel and touch, fixed in time, forever.
Not so fast. We now had to incorporate change, such as adding production factors (labour, capital, structures, machinery, equipment, risk-taking), expanding everything in size.
By doing this gradually, and across the board, it was like adding another room to the house, or if you wish adding some air to the shoulder pads as in cars to make them look more macho, if you wish Stallone-Rambo or Schwartzenegger near lookalikes and now sellable in the US market, and by extension the world.
This created a fiction which we then greatly extended by according weights to the various components, some of which looked pretty fixed, even over time.
So production was defined by sector (manufacturing, mining, services) and their respective weights recorded (and fixed in our minds as large or small). Our household consumption was broken up into durables, semi and non-durable goods according to their use and durability and thus replacement cycles. Fixed investment could be allocated as residential, non-residential structures, construction works, machinery and equipment. Government spending by type, taxation by source, everything by pie charts showing relative sizes. Inflation weighted various components of an average consumer goods basket.
The mind maps spread indefinitely, as we understood the structure of our many activities, how it hangs together, how it changes together, giving us certainty, to hold forth on how things change, and where and why.
But always with the fiction of fixtures in mind. Such as computer models relying on past relationships to define variables, but hardly ever taking all of history into account, or of being able to observe discontinuities in the making.
Things are, of course, a lot more complex than that, especially when things change, and they and their components change at different speeds, like a teenager perhaps going straight up for awhile while other body parts move to different drummers, and experiencing such variety all through life until in old age we are only a caricature of what we started out as.
Yet all the time depicted by some standard reference, in truth a caricature of the real thing at any living moment.
Now speed those processes up in an economy and you have a runaway train, as reality seems to be running away from you. Unless of course you refuse to see the cracks in the fiction, insist on the immovability of structures, and hold forth on where this mental construct of yours is going while in reality no longer having the foggiest notion of what this baby is really doing, and in the process changing shape and nature and thereby reality in ways you can only guess at for being so far behind you can no longer see the wood for the trees.
At its most extreme, you may find yourself describing atomic space where Heisenberg's uncertainty principle applies, in which position and momentum can never both be precisely defined at the same time. Thus at any time you may want to describe an electron's speed as it moves around an atom, but you will not be able to pin down its exact location, and vice versa. An electron itself does not "know" both precisely where it is and precisely where it is going at the same time: "we cannot know, as a matter of principle, the present in all its details".
But that is going to extremes, and jumps the gun (for who knows what surprises the real distant future will still offer us?). For now we only remain in the foothills of structural fiction, yet there too it is already important to have a better grip on reality than we seem to have, for our "relative" change is speeding up so much it is really changing all things out of the contexts we still try to force them into.
Take one old acquaintance, indices. These have components moving at different speeds, implying the size of their underlying contributors is also changing at varying speeds, yet we keep in place the allocated weights for we are not geared for real time dynamics.
We encounter this in inflation (prices), stock market prices, relative sector weights, GDP components and other indices we use daily to augment our mental picture of the economy.
The way to handle such continuous change is to rebase the indices before the build-up of distortions becomes too big. If the change is slow enough and the cost of the rebasing exercise big enough, we may only rebase with great intervals. Today inflation, GDP growth and industry sector weights for instance get rebased every five years.
Even every five years for most of our constructs is like meeting a new youngster who looks a little different from what we had become used to, as it turns out his components have changed more than we ever imagined even while staring at him daily.
Looked at this way, change still remains manageable in our day and age. We don't monitor in real time, as we consider change slow enough not to distort our reality too much relative to the fixed construct that we have forced on the data for another five years. But does it really not become overly distorted?
We know these things in an underlying sense are not fixed, things are changing, sometimes at a bewildering pace, but our minds have their limitations. We can see and understand fixtures. We have not mastered the trick, and never will, of tracking a life electron on its daily round around its atom core. So it suits us to stick with fiction, like rounding off the decimal point, to roughly reckon where the darn thing may be.
But real life, boys and girls, is still speeding up, like that cult film of not long ago, the Matrix (1999) with Keanu Reeves in the lead. Scary stuff, not knowing where your opponents are, not being able to distinguish reality from multiple other realities.
Are things really speeding up that much?
Some of it is optical illusion, but yes, the technological breakthroughs and the global shifts and competitive discontinuities have an abruptness that seem to increasingly take your breath away (in other words very fast change processes for what remain essentially very slow humans fixed on fictional fixtures).
Overnight, whole industries can disappear while others come into being, courtesy of internet, costless communication and infinite scaling within a seven billion global population with infinite working relationships.
This is starting to approximate the human brain in complexity, while the economic structural fixtures you are still using and are so firmly relying on to track and understand reality were crafty by your greatgrandpapa BC (before computers).
Literally.
So what does this mean? For starters you got to think more in real time without having data at your disposal, meaning you increasingly have to guess where the darn electron is on his daily round, given that you know the speed of light.
So the size of the manufacturing sector isn't any longer what you thought it was three years ago, and neither the inflation rate, never mind GDP trying to capture the whole lot, and by inference its rate of change.
Does this matter?
Ordinarily, I would have said No, stick with your five-year interval resettings and extrapolations in the meanwhile. These constructs remain good approximations for our still mostly physical world where that Roman road or water viaduct still pretty much lies where it was laid then.
But in other respects I am increasingly becoming intimidated, courtesy of so many of our fundamentally disruptive technological leaps and our great acceleration in globalization in which increasingly nothing remains the same from one moment to the next, and this injecting itself into social and political relationships as well, so that our daily reality increasingly comes across as cockeyed while in truth we need to change spectacles at increasing speeds to keep up with the deepening complexity.
Still with me?
So there was an industry (X) that you thought was there, and its physical remnants are still with us but it has already been mortally "disrupted" by a new Dead Star (I have a soft spot for George Lucas and his Star Wars).
While meanwhile there are TEN new major industries about to be born (going critical) and to then scale up in an instant to global size of which you are completely and blissfully unaware.
And their life cycle may be so short that you don't even become aware of their coming, going and passing (especially if gobbled up by greater turkeys which thereafter taken them from view, hiding them in their own innards).
Okay, we haven't overall reached those kinds of speeds yet, but for our purposes we may be approximating it often enough for it to have become a disrupting force in its own right.
Although, if truth be told, and you could bring your dear old greatgrandmama back to life, she might confirm she too at times experienced such strange sensations in her lifetime (in the 19th century). That was also a period of fast technical change, as experienced then, even if we can only look back with great pity for the participants, for things seemed to move so slow then from our vantage point. Everything is ultimately relative.
We don't know where all this will end, eons down the road, though it is certain to be (from our vantage point) a science fiction reality that we simply cannot start comprehending.
What is relevant for us, however, is the daily sense that the reported data may only give us a glimpse of economic reality, that things structurally are a lot more fluid to the point of dissolving daily, taking on new shapes while we still struggle with the old increasingly outdated concepts and pictures.
That realisation may help us to make mental adjustments to what we see and hear, getting a better intuitive grasp on where that darn electron may already be moving even if we can't see it or pin it down.
For that we require experience, talent, skill, what the golfer or tennis champ or soccer star or cricket supremo will call ball sense.
It is not given to everyone, but many have it.
Therefore go by your sixth sense. The markets will tell you quickly enough whether you guessed well or should leave the guessing to others. Unless, of course, the markets themselves have difficulty in riding this bronco.
And everything tells me they are. Complexity is rising above the human state and our tools are becoming overtaken for what we need in real time. Never so much as in the future that beckons.
Have a good one.
Cees Bruggemans
Consulting Economist
Bruggemans & Associates
Website www.bruggemans.co.za
Email economics@bruggemans.co.za
Twitter @ceesbruggemans