ADAPTING A MALADAPTIVE SOCIETY: Institutional Ecology vs. Economics

“Economists got away from really questioning how the world works, how decisions actually got made”. ___ W. Brian Arthur

“The major problems in the world are result of the difference between how nature works and the way people think”. ___ Gregory Bateson

“When a living system is suffering from ill health, the remedy is found by connecting with more of itself”. ___ Franciso Varela

“It is not the strongest of the species that survive, nor the most intelligent that survive, but those that can respond to change”. ___ Charles Darwin

“The crises we face are systemic in nature. To overcome those crises, we need to understand how systems work. To arrive at such an understanding, we need to think systemically.” ___ Ludwig Von Bertalanffy

Choosing Systemic Choices

Whenever I taught a class on systems thinking, I would remind students, that systems dynamics (feedback loops, nonlinearity, etc.) are simply an explanation of “how things actually work”. And these curious processes produce “emergent properties”, making the system “greater than the sum of its parts”. Plus, the new socio-ecological science of Complex Adaptive Systems (CAS), demonstrates how small choices can explode into dramatic systems wide changes. Hence CAS both presents alternative explanations and affords very different choices. From a policy perspective, these Systemic Choices (as I call them) are those that accumulate and reorder the system when diverse agents (cooperative, altruistic, and reciprocating — — and not just the greedy self-interested) interact in open democratic processes. More importantly, for societal studies, such as the economy, a systemic perspective shifts the “unit of analysis” from the individual to the patterns of interaction between individuals and their institutions (Note: https://press.umich.edu/Books/S/Systemic-Choices2) much like as Quantum Physics refocuses attention to the interaction of particles.

Consider a very crude example of a systemic perspective. I once had a magnificent house plant (actually a small tree) called a Charlton Ficus. It gave my drab apartment an out-of-doors feel, but just as it nearly filled the room, it began to lose it leaves. I launched into a variety of emergency measures (literally testing everything from chills in the room to the size of the pot). On very close inspection I finally discovered teeny tiny webs (evidence of a Spider Mite explosion). One source suggested that I needed to carefully wash every single leaf with a sightly treated water. I did this a few painstaking times and seemed to spot the nearly microscopic creatures running in fear. But, the defoliation only grew worse. Finally, I spoke with a few of my green thumb neighbors, and one told me that I needed a “systemic solution”. That is, I needed to add a simple chemical to the watering the entire plant (from the roots up), allowing it to rebuild it immunity. Needless-to-say, I the mighty systems thinker was embarrassed (smacking my forehead, “of course”). Much like the early studies of nonlinear dynamics in population biology (e.g., predator/prey models) the interactions between plant and the mites was nudged back into a “limit cycle” and symbiotic balance restored. The host recovered its former splendor.

In our current anti-systems thinking world, we most often treat only the symptoms, and often ignore the complex patterns and embedded processes that lay beneath. This collective stupidity is enforced by a deep seeded and dysfunctional desire to relegate big problems to isolated causes, usually involving a small handful of bad apples (not to mention erroneous scapegoats), in order to defend the status quo. Systemic inquiries might expose the rotten barrel to the ridicule it deserves. Mainstream Economists are especially prone to this path as they have a clandestine ideological agenda, stolen power, and political turf to defend. Ultimately these piecemeal and partial patchwork of responses to systemic problems renders the entire society unable to productively evolve and adapt to mounting crises (e.g., accelerating financial collapse and global climate change).

Maladaptive by Design

Mainstream Economics, with its static cultish world view (where Neoclassical Methods and Neoliberal Ideology morphed into Neofeudal policies and institutions) rendered the recent cascading financial crises unpredictable in advance and virtually inexplicable in the aftermath. Yet, they remain unrepentant, if not completely recalcitrant, against systemic approaches. In fact, they’re used these crises as a rationale to double down on their pandering to plutocrats. Meanwhile, the ever-increasing class stratification and social disintegration, opens the door for social unrest, further eroding the rule of law and democratic institutions, as diabolical demagoguery attempts to exploit the mounting societal chaos.

As a result, our institutions are riddled with labyrinthine “Rube Goldberg” contraptions, designed to protect the status quo in the face of cataclysmic forces. In systems terms, these mere band aids on gushing wounds actually increase the “brittleness” and reduce “resiliency” of the entire economy. Brittle systems become less able to cope with even minor shocks, and shatter like a thin piece of crystal. Overtime, this patchwork of quilt of temporary repairs becoming an overwhelming burden in and of itself. In evolutionary terms, the system is “locked-in” to Maladaptive Patterns in the face of perennial crises. Species that maladapt evolve right past their survival niche and eventually go extinct. Like a pain patient whom becomes addicted to opiates, eventually requiring increasing doses just to reduce the withdrawal symptoms, and becoming victims of overdose.

Toward an Institutional Ecology

The primary benefit of taking a perspective that blends Institutional Economics with CAS (what I call Institutional Ecology) is that highlights maladaptive patterns. A small band of European economists (lead by Alberto Botta, note: https://www.sciencedirect.com/science/article/abs/pii/S0048733320300706?utm), discovered a double whammy in terms of complexity dynamics (e.g., cascading systemic risks in webs of counterparty risk) and the increasing complexification of the financial service products. Mathematicians, and physical scientists turned “financial engineers” (or ‘Quants”) created a new generation of insecure securities (e.g., collateralized and synthetic debt obligations) specifically designed create the illusion of risk reduction. It is like when heroin was prescribed for morphine addiction. In sum, they both illustrated the value of viewing economy as a complex system, and then highlighted the misuse of complexity tools in generation of exotic and dangerous financial products. They also found that,

…. how the complex financial alchemy at the basis of such “opaque” financial products — originally meant to create highly remunerative and (apparently) safe investment opportunities — have caused deep changes in the functioning of the economy, affecting its growth performance, its macroeconomic stability, and the level of inequality characterizing income and wealth distribution.

Other explorations along these lines suggest a need to incorporate Hyman Minsky’s “Instability Hypothesis” (See: https://readmedium.com/so-what-if-our-minsky-is-more-than-a-moment-90b47e9cfbba), with the tools and concepts of CAS (Note: https://www.ppesydney.net/when-minsky-meets-complexity/?utm). Essentially, Minsky describes the maladaptive patterns that culminate in recurring financial crises (like the 2008 collapse). His observations of “endogenous aggregate cycles” of instability, could set the stage for complexity modeling. Meanwhile, stop-gap emergency measures prevail that defy Mainstream theories of money and banking, and greatly exacerbate instability via exploding the cascades of “systemic rick” (Note: https://www.nature.com/articles/nature09659; and, https://www.science.org/doi/abs/10.1126/science.aad0299). Furthermore, they have led to directly to increasingly costly and politically contentious governmental bailouts. New rules created by Federal Reserve (a private banking cartel, no more governmental than the Federal Express) recently extended this backstop to non-reserve systems entities and unregulated shadow bankers (hedge and private equity funds). Not to mention overriding the rules of the Federal Deposit Insurance Corporation (e.g., the Silicon Valley Bank fiasco). By contrast a series of complexity simulations could test a number alternative institutional arrangements (including: higher % of reserves, public banking, real fire walls between commercial and investment banking, etc.) as well as map potential political strategies.

Our society needs to begin to adapt quickly to unprecedented challenges and the longer it remains mired in a maladaptive institutional ecology, the more likely the consequences will be catastrophic. Economists know this, but have yet to fully address their disastrous anti-regulatory ideology and their support for the accumulation of unbridled political power in our highly unstable financial services industry. The b(w)ankers rejection of Biden’s choice for Comptroller of the Currency is very telling (See: https://www.npr.org/2021/12/13/1063767973/saule-omarova-gets-candid-banks-sank-her-nomination-to-head-occ?utm). If we cannot address the systemic flaws in our most maladapted nexus (money and banking), there is little hope for shared prosperity in our political economy, let alone coping with dramatic ecological changes.