THE LIMITS TO COMPLEXITY

A Fundamentally Flawed Perspective

The current U.S. administration has its eyes dead set on more fiscal stimulus
and/or monetary easing to counter the ever-growing threat of severe deflation on the
horizon. Despite the trillions added to our Treasury and Fed’s balance sheets in 2008-
09, the 2010 Q2 GDP number is anemic (1.6%) even when it can be trusted as
accurate. 1 Most of the ever-optimistic (and late-to-reality) American investment banks
have significantly revised their estimates for 2010 H2 GDP down to around 2%, while
most serious analysts agree it will be closer to a negative print. 2 Existing and New
Homes sales in July 2010 have experienced record declines in the absence of
government subsidies (~27% and ~35%). 3 4 Unemployment remains significantly higher
than reported, as U-6 hovers at 17% and shows no signs of improving (includes workers
who have given up looking for jobs – can we blame them when there are 5 workers for
every job?). 5 Close to 40 million Americans are on food stamps, 5 million on emergency
unemployment benefits and 500,000 recently filed initial jobless claims in one week.
Equity outflows from institutional investing firms have continued for months unabated
and have totaled over $50 billion year-to-date. 6 Confidence indicators have been
gradually deteriorating among consumers and businesses, and that does not bode well
for the largest pyramid scheme in human history.
On the other side of the American political divide, conservative Republicans who
claim to identify with tea party activists argue for fiscal austerity and less government
regulation/intervention in the economy. Leaving aside the glaring hypocrisy of these
politicians (many of them contributed greatly to a doubling of the federal debt and
expansion of subsidies/entitlements from 2000-08), there are still several other troubling
aspects to their alleged views. One of these aspects is the gross injustice of asking a
majority of the population to forego promised entitlements and economic relief after we
already decided to bail out a small minority of the population. Two wrongs don’t make a
right, but neither does one wrong and a humiliating slap to the collective face. Another is
the fact that many of these politicians have no idea what their policies really entail for
the economy. As explained in sections below, it’s not as simple as cutting deficits,
letting the free market take over and watching the flowers bloom as the sun shines on a
                                                            
1
 http://www.zerohedge.com/article/goldmans‐take‐q2‐gdp‐ongoing‐inventory‐accumulation‐still‐correction‐
threat 
2
 http://www.zerohedge.com/article/morgan‐stanley‐finally‐folds‐lowers‐h2‐gdp‐forecast‐3‐2 
3
 http://www.washingtontimes.com/news/2010/aug/25/july‐new‐home‐sales‐fall‐slowest‐pace‐record/ 
4
 http://www.calculatedriskblog.com/2010/08/existing‐home‐sales‐lowest‐since‐1996.html 
5
 http://www.economicpopulist.org/content/u3‐and‐u6‐unemployment‐during‐great‐depression 
6
 http://www.zerohedge.com/article/can‐you‐hear‐me‐now‐17th‐weekly‐fund‐outflow‐equity‐fund‐redemptions‐
accelerate 
new day in America. There will be a chaotic descent into economic depression and a
need for governments to help mitigate the damages and promote structural reforms to
the debt-based, fossil fuel economy. Speaking of fossil fuels, these politicians and
pundits also naively ignore the critical issues of climate change and peak oil production
or assume unregulated free(-falling) markets can eventually solve these issues on their
own, without much negative impact to the economy.
The main critique of this essay is that the viewpoints described above have a
fundamentally flawed perspective on our current economic predicament. Whether it’s
the left or the right, the free marketers or the socialists or many of the shades in
between, the mainstream consensus is one of desperate hope for a rapid return to
continuous economic growth, low unemployment, relatively cheap finance and rapid
consumption of natural resources. More generally, there is an insatiable lust for
maintaining complexity in our modern systems of economic exchange and social
organization. Of course, this critique is not true of everyone in the mainstream camps
described above, but I find it telling that we rarely (almost never) hear the word
“complexity” or phrase “peak” anything mentioned in their bitter debates.
Complexity Analogized
One of the most familiar complex systems to Americans is our country's inter-
connected network of highways, which allow the interstate travel of goods and capital
(humans included). This flow mainly passes through large urban centers that act as
hubs for the rest of the network. We could have built these highways and then left
drivers to their own decisions on how to use them, but it became clear that completely
unregulated networks of travel imposed unacceptable safety/economic risks for our
society. In fact, the potential risks and instabilities of such a system were so large that it
may have completely broken down before it led to any significant gains. Instead, we
resorted to licensing procedures and various vehicle and highway regulations.
People who wish to take advantage of the highway system must first be taught
the basics of operating a vehicle and pass a test of their knowledge. They must also
follow the regulations imposed on them (speed limits, traffic lights, signs, etc.) and
maintain their vehicles (annual inspections) under threat of economic or physical
punishment. There is also the requirement that drivers get insured for accidents so that
they will not pass off the cost onto taxpayers or innocent victims. All of the above are
top-down policies used to manage a complex system containing numerous interacting
variables. Many motor vehicle accidents still happen and many people still die each
year because of them, but we have decided to put up with that level of instability in
return for the efficiencies created. One can argue that even this somewhat balanced
system is long-term unsustainable and destructive (especially considering
environmental costs), but at least it has yet to fall apart.
Now we can compare the highway system to the significantly more complex,
expansive networks of the global economy and specifically the financial markets that
make international trade/investment possible on a global scale. Individual countries (or
even major cities in the larger state economies) can be considered the central hubs for
much of these economic flows. The flows are greatly aided by the use of financial
instruments (bonds, letters of credit, etc.) that are much easier to “manufacture” than
the goods/services being exchanged, though they may be harder to comprehend.
Financial markets provide humanity with a method for pulling future energy/resources
(real or perceived) into the present, which allows for greater levels of present-day trade,
consumption and investment. The key point here is that these sources of
energy/resources may not exist and/or be easily utilized in the much depended on
future. A system can only retain or evolve its complexity as long as new
energy/resource inputs are provided to it in ever-larger doses.
The credit bubble over the last few decades reflects an exponential growth of
complexity in the global economy (and in all of human civilization as a result). In 1929 at
the beginning of the Great Depression, the U.S. private debt to GDP ratio was about
150%. Fast forward to 2007, and we have more than doubled that ratio to a staggering
300%+ and many other countries have also followed in our misallocated footsteps
(housing bubbles have developed in Canada, China, India, Australia and many Euro-
zone countries to name a few). 7 America could rightfully be accused as the primary
driver of this bubble, since we have the global reserve currency and much of the debt
incurred by people in other countries was denominated in dollars. We owe much of that
status to our bloated military-industrial complex and reckless/malicious expansionist
policies (the U.S. has 700+ military bases established around the world). 8
We also see that public debt levels in the global economy have reached levels
much higher than those in the 1930s. The public debt to GDP ratio for the U.S. is either
90% (total national debt), 150% (total debt including GSE debt) or 900% (total debt
including GSEs and unfunded entitlement obligations), with the latter two being the most
accurate, which is probably why the Chairman of the Joint Chiefs of Staff (Mike Mullen)
called it the “single biggest threat” to national security. 9 As a result of this debt-fueled
private and public spending spree, economic activity has reached a very large scale and
scope around the globe and many new inter-dependencies have been created between
countries, corporations and individuals. American people have increasingly found
themselves relying on megalithic grocery/retail stores to secure supply of food and
consumer goods from across the planet, while American corporations rely on labor,
parts and services from many different countries.
Several global institutions have been designed to impose a top-down
management structure for these complex economic and political relationships. Similar to
state and federal regulatory bodies within a country, they are commissioned to
“alleviate” inherent instabilities that arise from the operations of a complex, dynamic
system. Needless to say, they have predictably failed at this goal even more miserably
than the central governments of nation-states. The global credit (complexity) bubble is
                                                            
7
 http://www.eap‐journal.com.au/download.php?file=688 
8
 http://www.globalresearch.ca/index.php?context=va&aid=5564 
9
 http://www.zerohedge.com/article/chairman‐joint‐chiefs‐staff‐says‐national‐debt‐biggest‐threat‐national‐
security 
currently in the process of imploding due to its inherent Ponzi dynamics. As is the case
with any Ponzi scheme, it can only be maintained if new entrants continue buying into it,
but most economic actors (individuals, corporations and governments) are now
saturated with debt as their cash flows have stagnated or declined (they can barely
afford to pay down existing debts, let alone take on new debt). Multiple claims to
existing real wealth are destroyed as the bubble implodes and our societal systems,
which are mal-adapted to credit contraction and slow/negative growth, begin to
experience immense destructive pressure. This process is quite evident in the Euro-
zone, where entire “sovereign” states are quickly descending into utter insolvency
despite the newly-formed credit facilities of the ECB and IMF (the latter recently decided
to eliminate the borrowing cap on their facility in a final act of desperation). 10
We must also keep in mind the role of feedback loops when discussing complex
dynamics, since variable elements of a system constantly interact with each other in
unexpected, but also generally predictable ways. As a system’s complexity increases,
negative feedbacks provide a certain level of stability and the system can self-organize
at a relatively stable equilibrium. However, at peak levels of complexity the negative
feedbacks are overwhelmed by instabilities that have formed, and on the way down
predictable positive feedbacks are the hallmarks. In a complex economic system that
has reached peak financial activity, debt destruction from pay-downs and defaults leads
to falling aggregate demand, suppressed prices, shrinking profit margins, increased
unemployment, which further reduces demand and suppresses prices. American states
on the brink of bankruptcy are all too familiar with these positive feedback loops, as their
high rates of unemployment have led to low tax revenues, leading to spending cuts/tax
hikes, leading to lower incomes and higher unemployment, leading to even lower tax
revenues and massive fiscal deficits. These are just two of many positive feedback
loops which occur in a debt deflation, and it is important to remember there are other
factors involved and cross-interactions between separate loops within a system. They
are also not limited to just the economy but eventually find their way into politics and
societal trends at large.
The Devil’s in the Details
Neo-Keynesians’ House of Cards
President Obama’s administration, with the aid of various academics (such as
Paul Krugman) and media pundits (such as those on CNBC), have embarked on a
mission to restore “business as usual” economic growth through the use of fiscal
stimulus, “loose” monetary policy and direct government intervention in the economy.
The American Reinvestment Recovery Act allocated about $820 billion to various local
governments and companies in an effort to create jobs. What they don’t tell you about
the ARRA is how much of that money, as a matter of necessity, is wasted in
bureaucratic institutions that distribute and keep track of the money as it is funneled

                                                            
10
 http://www.zerohedge.com/article/imf‐removes‐borrowing‐cap‐rescue‐facilities‐anticipation‐europe‐crisis‐20‐
us‐prepares‐print‐ 
down to economic actors. 11 Much of the money also goes to funding extremely
misguided projects, such as tax credits for homebuyers that incentivize the construction
of new homes when there is already a year’s worth of excess supply. Sometimes the
money goes to fund the repair of roads that don’t even need any repair, as I have
personally witnessed in my own community. New estimates have made clear that it is
unlikely more than 1 million jobs were created by the ARRA stimulus, which amounts to
$820,000 per job, some of which were not even productive for the general economy. 12
Debt saturation and peak complexity is the primary reason why every additional debt-
dollar spent into the economy produces significantly less than a dollar of productive
economic value. The most that can be said by the administration about this fiscal
stimulus is that it redistributed wealth from working class taxpayers to…well, other
working class taxpayers, but also REITs (real estate investment trusts) and banks, and
a bunch of money was lost in the process.
The loose monetary policies being used include keeping the federal funds and
discount rate at close to 0% (rate at which banks can borrow from each other and the
Fed) and purchasing debt assets such as mortgage-backed securities and treasury
bonds (“quantitative easing” to inject liquidity into banks). Our central bank is now sitting
on a portfolio of around $2 trillion in securities and has recently decided to keep that
value constant by reinvesting principal pay-downs on mortgage and agency debt into
long-term treasuries. 13 The above policies serve to keep a floor on mortgage rates and
finance our government’s deficits at low interest (what used to be stealth monetization is
now just monetization), while also providing cash to banks with the alleged hope that
they will lend it out into the economy, where consumers and businesses will
spend/invest the loaned money. Out there in the real world, no such lending has
happened, as the banks are sitting on $1+ trillion in cash and the Fed is caught in a
liquidity trap. This trap implies that any small increase in rates will have a
disproportionate inverse effect on debt servicing costs and therefore spending and
investment. As the notable Australian economist Steve Keen likes to point out, when the
Fed’s objective is to create growth in the productive economy, the above policies simply
amount to pushing on a string.
Private markets are currently saturated with debt and therefore very few people
want to borrow money, and very few lenders want to make loans at affordable rates
since debtors can barely pay back what they owe now. As mentioned before, interest
rates have bottomed out and there is minimal economic activity to show for it. The
velocity of money in the economy has collapsed, and the Fed’s policies merely transfer
large sums of taxpayer money to major banks that use it to blow more speculative
bubbles in stocks, bonds, commodities, and derivative bets on the price movements of
those assets. A prominent blogger/author named Charles Hugh Smith would ask “cui
bono” (who benefits?) from these policies, and the answer would not be 90%+ of our
                                                            
11
 http://www.ibtimes.com/articles/29282/20100617/stimulus.htm 
12
 http://www.zerohedge.com/article/cbo‐clears‐things 
13
 http://www.zerohedge.com/article/august‐fomc‐minutes‐increased‐risk‐disinflation‐economy‐slow‐2010 
population (the top1% hold 33.8% of all wealth and more than 50% of all stocks and
bonds in America). 14 Maybe a better question is who loses, and the answer to that
would be a solid majority of American taxpayers and savers (since interest paid on
deposits remains at next to nothing).
Another tactic used by the current administration is to directly intervene in the
housing market to keep mortgage rates low and support prices, since they view housing
as the primary cause of the current crisis. The U.S. Treasury (taxpayers) is currently
guaranteeing more than 90% of all new mortgages issued in the last year through the
government-sponsored enterprises of Fannie, Freddie and also the FHA. 15 As we can
see with the large downturn in recent housing data, this intervention has merely allowed
us to kick the can a few feet down the road, and the can became significantly larger
after we kicked it. In effect, these interventionist policies keep prices artificially elevated
for a little while and loan losses off of banks’ balance sheets, while homes become even
less affordable for financially responsible people looking to buy. Even with record low
mortgage rates, people are refusing to take on more debt to purchase an over-priced
house unless there is a promise of a government handout lurking in the background,
and the government simply cannot afford many more handouts. What much of the
above interventionist policies amount to is a substitute of private debt held by politically
influential groups for public debt held by the taxpayers and future generations, which
ultimately creates even more disturbances in public credit markets and crowds out
what’s left of private investment (more money has to go towards financing deficits).
The administration has also presented several “structural” fixes of the health care
and financial industries for public consumption. These bills were thousands of pages
long and filled with new regulations and tweaks to existing ones that really did nothing to
address the underlying fundamental problems with these systems. The health care bill
did little more than give the health insurance companies 30 million new customers
through government mandate, and the “finreg” bill failed to break up the TBTF banks,
audit the Fed or create transparency for risky derivative products. More importantly,
these new top-down regulations have the inherent feature of creating unintended
consequences in our complex society, despite the alleged best intentions of their
creators, and can even make the targeted problem worse. The financial reform bill
created new restrictions on “angel investors” which will inadvertently stymie the
creation/expansion of small businesses, while the behemoth investment banks will
continue to exploit financial markets by hiring teams of lawyers to easily bypass the new
regulations that affect them (as they are currently doing with the “Volcker Rule”) or by
simply buying off the regulators. 16 17 Meanwhile, as the administration pretends to
                                                            
14
 http://www.zerohedge.com/article/presenting‐findings‐working‐group‐extreme‐american‐inequality 
15
 
http://www.newpatriotjournal.com/Articles/Fannie_Freddie_FHA_Account_for_90_percent_of_Mortgage_Market 
16
 http://seekingalpha.com/article/199271‐dodd‐bill‐will‐kill‐angel‐investing 
17
 http://www.zerohedge.com/article/jpmorgan‐shutting‐down‐all‐prop‐trading‐desks 
combat fraudulent practices in the financial industry by creating a “Consumer Finance
Protection Agency” (housed in the Fed), they actively aid financial institutions in
committing accounting fraud by suspending federal rules that require them to mark their
assets to market value (just another part of what many term “extend and pretend”
policy). 18
Finally, another recent tactic of current governments has been the use of central
bank intervention to suppress a politician’s worst nightmare in a deflationary economy,
currency appreciation. The Swiss National Bank has admittedly bought up billions worth
of Euros to prevent the Swiss Franc from appreciating too much during the ongoing
European sovereign debt crisis of 2010, but they ended up taking significant losses on
those transactions (and I’m confident that Germany didn’t mind the boost to exports
provided by the Euro at 1.20 against the dollar). 19 We can be rest assured that the
central banks of the U.S., Japan and China have done the same type of intervention
and will continue to do so when they feel it necessary. Disregarding the inherent
unsustainable nature of major economies racing to the bottom of the currency
depreciation endgame, the marginal benefits of these interventions have severely
contracted as their half-lives become shorter and shorter. Currency investors (who
manage to trade $4T daily with 50x leverage) 20 have realized that a central banker
pushing a button somewhere to buy a few billion here and there will not change the
fundamental economic realities faced by the global economy. Diminishing marginal
returns, whether they are those of interventions or investments, are best viewed as a
function of decelerating complexity. Razor thin margins in the global economy are no
accident, but only the logical destination of our complex, infinite growth-based systems.
We should also consider the possibility that some or all of the above policies will
miraculously be successful in creating sustained economic growth, price inflation, and
wealth creation. In the case of such a rare event, the question still remains of when and
how intervention can be stopped, and whether we will return to the same credit-based,
consumption economy we had in the past. Will we merely restart the credit bubble and
restore our modern lifestyles in the developed world? These questions in turn raise the
issues of continued over-consumption of resources, environmental destruction and
accelerating climate change, which are the most important long-term issues that
humanity faces. After all, how long can an economy continue growing when billions of
its supporting members around the world are dying of starvation, thirst and/or resource
wars?

                                                            
18
 http://www.zerohedge.com/article/developing‐implications‐loan‐accounting‐law‐mark‐market‐mark‐model‐or‐
mark‐market‐crash 
19
 http://www.zerohedge.com/article/after‐two‐week‐sabbatical‐snb‐comes‐roaring‐back‐swiss‐franc‐
manipulation 
20
 http://www.zerohedge.com/article/4‐trillion‐day‐and‐50x‐leverage‐fx‐trading‐volume‐and‐risk‐dwarfs‐equities‐
and‐treasuries 
 Our Disingenuous “Saviors”
Conservative politicians/pundits who adhere to the Tea Party mentality are, at
best, disingenuous in their promises of returning to the status quo of economic growth
and complexity with fiscal conservatism and small government. They suggest that many
of our economic ills can be cured if we simply withdraw all government fiscal/monetary
supports and drastically reduce public spending. Now it is true that spending should be
drastically cut in certain areas, and intervention should be drawn down to a large extent,
but the question then becomes what happens if we do that and not much else. The
break down of complexity in a system does not adhere to human concepts of fairness,
order or social stability. If these politicians actually follow through with what they
promise, a lot of wealth will be destroyed as asset prices, wages and business profit
margins fall drastically. Societies grown accustomed to continual growth and high
standards of living will have their expectations dashed and will experience the societal
equivalent of post-traumatic stress disorder. There will be deterioration in social order,
an increase in crime rates, and an exacerbation of people’s distrust/paranoia of all
groups perceived as “different” or those claiming a right to the same piece of economic
pie (the increasingly heated debates over illegal immigration is a great example of this
dynamic).
Austerity measures are being pushed heavily in European countries and by many
people in America concerned about public debt. Their concerns are entirely valid and
something should be done to reduce deficits, but we must also be candid with the global
population about what the term “austerity” really implies. It is actually another way of
promoting reduced complexity in our modern society. Just as our debt-fueled private
and public spending sprees have pulled forward energy/resources to maintain and
evolve complexity, a global or nationwide savings plan would pull the resource rug out
from under our extremely complex systems. This loss of complexity necessarily means
much less economic activity and access to goods/services across distant locations. For
example, a $1 trillion reduction in government spending could easily translate into an
equivalent or slightly higher reduction in GDP. As profit margins for businesses are
squeezed from price deflation, more people will be laid off and that will further reduce
demand and prices in a classical positive feedback. A deflationary spiral into depression
is an extremely messy process, and when it stems from a financial crisis, fragile supply
chains of goods/services will be disrupted since producers, distributors and purchasers
will have limited or no access to letters of credit. This aspect of a debt deflation was
clear during the first Great Depression, when farmers would throw perfectly good milk
into ditches while other people were starving down the road. 21
The conservatives and libertarians also rave about the need for a complete
extraction of government from economic and financial markets. While this extraction
would certainly allow natural forces to take over and bring about a steady-state
equilibrium sooner, it will be extremely ugly for some years. The method in which this is
done is also important, because an immediate withdrawal of government supports from
housing and financial markets would trigger major declines in economic growth and
                                                            
21
 http://theautomaticearth.blogspot.com/2009_10_01_archive.html 
employment, as recent economic data should make evident. It would be more sensible
to at least attempt a gradual withdrawal of support coupled with targeted aid to those
most harmfully affected by the ensuing deflationary spiral. We should also remember
that there’s a difference between funneling taxpayer money to banks via bailouts,
quantitative easing, zero interest rate policy and various government backstops, and the
government implementing fundamental structural reforms to the current setup of our
financial institutions and credit markets. The latter must eventually be done to prevent
the same exploitative systems we currently have from regaining their former levels of
societal entrenchment.
Innovative Suggestions and Unanswered Questions
There are several other suggestions for “solving” our problematic encounter with
peak complexity that attempt to restart sustained economic growth without introducing
loads of new private/public debt or harsh austerity measures. For one, the government
could abolish the Fed and literally print their own money (as Lincoln did with his
greenbacks) and distribute it to households so they can pay down debts and
spend/invest in the productive economy. This would allow banks to regain some value
on their bad loans while also allowing consumers to get out of debt and regain some old
spending/investing habits. We could also couple these monetary injections with
structural reforms to the financial sector, limiting the ability of private banks to create
unlimited credit and blow speculative bubbles. However, we can't analyze this situation
in the vacuum of the American productive economy, since after all we are a part of a
larger financial complex that stretches across the entire globe. I still find suggestions
such as this one to be significantly more sensible than pure Neo-Keynesian or
Libertarian policy prescriptions, so I will simply present a few questions that immediately
come to mind (some of these are semi-rhetorical):
How will the domestic banks react as their debts are paid down with freshly
printed money? Will they be concerned about inflation?
What about institutional investors currently holding cash and treasuries as their
primary assets? Will this new stimulus spark a "risk on" mentality where
assets/commodities are bid up and treasuries are dumped for cash to invest in
risk plays? Can the Fed soak up all of these dumped treasuries and keep interest
rates from rising and consuming a large part of government revenue (which
would turn us into a much bigger Greece)? 22
What about our foreign creditors who will see others dumping treasuries while
debts incurred to buy their cheap goods are being paid back with printed money?
It is true that there will be much more debt overhang than money printed in the
stimulus program, but hyperinflation is not so much an economic event as a
sociopolitical one (internal or external loss of confidence in government
institutions).

                                                            
22
 http://www.zerohedge.com/article/guest‐post‐how‐hyperinflation‐will‐happen 
 How much moral hazard will be created by such a significant bailout of debtors
and creditors? Is current moral hazard already so high that marginal additions to
it will be insignificant, or will it push us to a point where people, corporations and
their politicians will refuse to ever abandon the current Ponzi system?
Another interesting policy idea is printed monetary stimulus and tax cuts for
households combined with central bank monetization of treasury debt to offset lost tax
revenues and keep interest rates stable. The federal income tax could be greatly
reduced or even eliminated, and monetization could make up for the revenue shortfalls
that result. This particular idea was actually mentioned by Ben Bernanke when speaking
about Japan’s prolonged deflation and possible policy responses in a similar situation.
Of course, with another idea designed to maintain the path of modern civilization comes
more troubling questions (and all of the questions above still apply) 23 :
As the dollar is devalued from printed stimulus and debt monetization, how will
other major economies stuck in deflationary traps react to appreciating
currencies and decreasing exports?
Follow up: Exactly how ugly can a trade war between major economies get?
How much stimulus will have to be applied before consumers and investors heal
their scars, pull the cash out of mattresses and start spending/investing again?
Will the government pay back its expanded deficits with printed money, and if so
what does this mean for the prospects of real or perceived inflation?
What will occur when “organic” growth has restarted and we attempt to unwind
the drastic monetary policy interventions that have been undertaken? How do we
restore our tax revenues in an acceptable way?
In light of these unanswered questions and others not asked yet, it appears that
the more “innovative” suggestions offered to solve our predicament are still
underestimating our complex, global society’s unpredictable reactions to various
manipulations at the margin. Similar to the mainstream policies heavily criticized earlier,
they certainly tend to ignore the tougher questions regarding what we will do to create a
more sustainable society once we are successful in restarting economic growth for the
time being. In all fairness, that issue is much broader in scope and more complicated to
properly analyze, but it should always be lingering in the background. Taking into
consideration all of the above criticisms of policies that attempt to maintain economic
complexity, it is hard not to conclude that greatly reduced complexity is the only path to
sustainability. There may not be anything “wrong” with our desire to maintain the
complex systems we have evolved up to this point in time, except the fact that this
desire may not be compatible with the laws of nature.

                                                            
23
 http://www.oftwominds.com/blogaug10/QE‐helicopter‐drop08‐10.html 
The Limits to Complexity
In 1972, several authors published a book entitled The Limits to Growth that
explored the relationship between exponential population growth and finite resource
supply/production. What they basically attempted to model was the extent to which a
broad system (such as human civilization) could increase and maintain its complexity
(best measured by population) in an environment with resource constraints that
increase in an exponential or non-linear fashion. They viewed technological advances
as a linear process that could not keep pace with the effects of population growth and
resource depletion. In a subsection of the book, the authors made clear that their model
was designed to illustrate what they termed “broad behavior modes” of human systems
rather than make specific predictions regarding peak resources and population growth.
They expanded on that concept using the following example:
“If you throw a ball straight up into the air, you can predict with certainty what its
general behavior will be. It will rise with decreasing velocity, then reverse
direction and fall down with increasing velocity until it hits the ground. You know
that it will not continue rising forever, nor begin to orbit the earth, nor loop three
times before landing. It is this sort of elemental understanding of behavior modes
that we are seeking with the present world model. If one wanted to predict
exactly how high a thrown ball would rise or exactly where and when it would hit
the ground, it would be necessary to make a detailed calculation based on
precise information about the ball, the altitude, the wind, and the force of the
initial throw. Similarly, if we wanted to predict the size of the earth's population in
1993 within a few percent, we would need a very much more complicated model
than the one described here.” 24
With the above example, the authors are in essence describing a complex,
dynamic system whose specific behaviors are unpredictable. The global economy
certainly fits into this category, and of course it is entirely based on our current supply of
energy/resources or the loosely estimated future supply we have borrowed against. This
latter aspect of complexity represents the top of our global economic pyramid that is in
the process of breaking down via “financial crises”, but more on that later. Our task here
is not to determine exactly how the system will behave in the near future, but to take a
bird’s eye view of general trends between multiple interacting variables. This
perspective is something our current leaders, media pundits and mainstream academics
fail to account for, and that’s why many of their “solutions” fall way short of achieving
anything sustainable and are many times extremely destructive. We desperately need a
fresh, new perspective on our current economic predicament before we can figure out
the best ways to navigate through it.
Standing On the Brink of Release
Buzz Holling was instrumental in describing the adaptive cycles of complex
ecological systems, and specifically he studied forest ecosystems. He identified 4
                                                            
24
 http://en.wikipedia.org/wiki/The_Limits_To_Growth 
general stages of evolution in complex ecological systems, and these could just as
easily be applied to human systems that have been built on the foundation of those
ecological systems (my descriptions will be greatly simplified – follow the referenced
sources for more detail) 25 :
1. Growth – The system finds an abundance of available resources and spaces
which are exploited for material wealth, and this flow of energy/resources
allows the development of many inter-dependencies, efficiencies and
specialized functions. Diversity of agents within the system increases as does
overall wealth.
2. Conservation – The system’s rapid growth decelerates as it becomes highly
specialized and opportunities for novel exploitation strategies diminish.
Increasing amounts of energy are directed towards conserving the existing
system instead of growth, and “wealth” is extracted from the periphery to
central parts of the system. The system’s complex inter-dependencies
become more rigid and less resilient to disruptions that may propagate
throughout the highly-connected networks of the system (Holling described
the system at this stage as “an accident waiting to happen”).
3. Release – A relatively small triggering event exceeds the margins of error
allowed in the system and pushes it into a chaotic liberation of energy and
resources. The previous structures, relationships and complexities of the
system are rapidly dismantled as central hubs deteriorate and networks are
disconnected.
4. Reorganization – The fractured parts of the previous system re-structure
themselves into more complicated relationships, but not necessarily in the
way they were organized during the first growth phase. Typically, this phase
leads to a restarting of the adaptive cycle in which many new opportunities for
innovative development become available.
It is also important to note that complex ecosystems are typically composed of
smaller systems and are also embedded in larger systems, creating a nested set of self-
similar structures. Typically, the larger system can absorb much of the release from
smaller systems contained within it, and act as a “memory bank” that allows rapid
regeneration of the smaller system. If an individual American company goes bankrupt,
its assets can typically be absorbed and immediately put back to use by other
companies in that economic sector (assuming it does not have TBTF status). However,
if the larger system is synchronized with the smaller system during the release and
reorganization phases, then it could potentially lead to what Holling terms a “poverty
trap”, in which low levels of wealth and connectivity are persistent. 26

                                                            
25
 http://blog.softwareprojects.org/panarchy‐analyzing‐complexity‐projects‐312.html 
26
 http://theautomaticearth.blogspot.com/2010/01/january‐1‐2010‐fractal‐adaptive‐cycles.html 
 It is pretty easy to see the progression of our global economy through the stages
listed above. Since the industrial revolution, our fossil fuel inheritance has allowed local
economies to become increasingly specialized, efficient and inter-connected with others
to create even more efficiencies through trade and investment. On top of that, a smaller
system of global finance has developed through equity and credit markets that
traditionally facilitated productive investments in people, businesses and governments.
Of course the last few decades have seen a rise in what can most accurately be called
Ponzi finance, in which major creditors extract wealth from the global population by
pushing non-productive debt on them and taking control of political institutions that
could potentially stand in their way. To be fair to the debt pushers, we (in the developed
world mostly) have gladly bought their drugs and have remained their loyal addicts to
the bitter end.
The 2008 subprime housing crisis was the spark that ignited the release of our
complex financial system, and unfortunately finance is such a large part of the global
economy that there is not much of a larger economic system to absorb the fallout. It is
also true that our oil-subsidized industrial economy is approaching its own stage of
release that cannot be absorbed by an alternative energy economy, and as if things
weren’t dire enough, it is arguably the case that our entire atmospheric system is
synchronized as well due to the ongoing process of carbon emissions and climate
change (the effects of which millions of people are experiencing now). The processes of
growth and conservation in these systems of varied scales may have differed
temporally, but it appears that the tipping points triggering their release are converging
within a few decades at most.
Instead of building resilience in the face of exponentially increasing complexity
and decelerating growth, we have pushed forward full speed ahead and concentrated
increasing amounts of resources/wealth in our corporate-governmental central hubs.
We have become extremely vulnerable to any shocks that could potentially propagate
throughout the system, as we recently witnessed when a few major banks held the
entire global economy hostage. Now our debt-saturated governments are trying to save
the current system by concentrating even more wealth in the center, but nature clearly
has other plans. It is painfully clear that politicians, corporate executives, corporate
media and all other central actors that have power to implement large-scale policies
promoting resilience have chosen (intentionally or inadvertently – does it really matter?)
their own material interests over that of the masses. We, as individuals and
communities, must choose to implement our own policies of resilience, because we are
ultimately a part of a much larger system than the economic, political or social systems
that have been imposed on us.
We Can Survive With No Regrets
Some people find economic theories and abstract mathematic principles
extremely dry and unfamiliar. I’m pretty interested in economics and finance, but I still
find it painfully boring to watch Ben Bernanke testify about monetary policy in front of
Congressional representatives, who probably find it even more boring than I do (which
may explain their weak excuses for questions). But most people familiar with the
modern world, especially those of us in fully “developed” countries, have intimate
experience with complexity on a daily basis. We are constantly bombarded with facts
and data regarding events and trends progressing around the world. We attend colleges
with dozens of specialized majors and tracks of study within those majors. People
constantly tell us that the world has become “smaller” due to telecommunications
technology, which is true in a sense, but they fail to mention the world has also become
exponentially more complex.
It is especially easy for us to identify the advantages of increased growth and
complexity. These advantages are mostly materialistic in the sense that we have more
financial “wealth” and higher standards of living. The disadvantages are sometimes
harder to grasp since they are more ephemeral in nature. We are more isolated from
nature, disconnected from local communities and uncertain about the future. Some of
our most basic concepts and values, such as fairness, equality, cooperation,
compassion and ethical behavior, have been watered down to the point of being topics
for dinner tables or the occasional academic journal, but nothing else. There are
certainly material disadvantages to a complex, highly-dependent society as well, since
many people have lost the knowledge/ability to grow food, build things, fix things and
generally be self-sufficient. However, there has been at least one extremely important
advantage to complexity in the development of advanced communications technology,
and especially the internet which has connected billions of people across the globe.
Insightful thinkers can use the internet to communicate their ideas to people in a distant
location such as me, and I can then use their ideas to write a short essay such as this
one, and send it to several others. We can use the communications networks to take
back some level of knowledge, cooperation and resilience that we may have lost.
There are five general areas of resilience that every individual and family should
understand and take incremental steps towards. These include food security, water
security, energy security, health security, and financial security. There are many
tremendous writers out there that have written and spoken volumes on these issues and
have generously shared their knowledge with anyone willing to read or listen. One of
these people is Chris Martenson, who has taken the time to write an entire series on the
general steps anyone can take towards becoming more resilient and, as a result, more
peaceful in mind. Here are the links to seven of the articles he has written to this date:

• Getting Started

• Water Security

• Food Security (storing food)

• Food Security (growing/preserving food)

• Health Security

• Energy Security (heat/power/communications)

• Financial Security
 The quicker we individually quit acting like deer caught in the headlights, and
take actions towards resilience, the better off we will be as a collective species on a
planetary system that has generously supported us, and continues to do so. The
upcoming years will truly be a unique, eventful chapter in the history of human
evolution. Perhaps in whatever records of history that may survive this rapid
transformation, we will be known as the “peak generations” who sacrificed their
extraordinary wealth, lifestyles, and comforts for a more simple form of social
organization, where we re-organized to create a sustainable, just society. More likely,
we will end up being the “peak generations” that fought desperately to defy reality and
ended up in a heap of our own rubble. Either way, we should not focus on what society
thinks about us now or how we will be remembered in the future. We should only be
focused on doing what needs to be done, and then we should do it with no regrets.