As a kid, when a friend asked us whether the chicken came first or the egg, most of us found ourselves in a fix. We couldn’t really propose a logic for our answer and it remained a mystery. As we grew up, deciphering people’s behavior and reactions was a challenge. Now imagine, what would happen when the global economy tries to simultaneously comprehend economic, political and social sentiment spanning nations and decode the beginning and end of it all ?
Complexity, an adequate exposition for the basis of this theory, remains ‘indefinable’ across science and economics till date. While a commonly approved definition of complexity states that, “Complex systems refute the approach of traditional science according to which a system’s behavior can be understood by studying the system’s parts independently at each level. The difficulty of a complex system is that often its parts are interacting on many time and length scales. eg: a living organism where the molecular processes inside the cell cannot be clearly separated from processes at more macroscopic levels such as the brain.” In other words, complexity presupposes the simultaneous occurrence of multiple events which may or may not be directly related but can have an impact on each other. In such a scenario, it becomes exceedingly difficult to attribute the cause to one single event or establish a concrete relationship between a series of events.
- A,B,C…Z happen at the same point of time
- A,B,C…Z are interlinked and its confusing!
- A fails –> D fails –> P fails –> Chain reaction leads to failure of multiple events
- Since we do not know the exact relationship between any two variables, forecasting tends to fail
Linking complexity with the global landscape, the advent of technology has intermingled intricate bits of the world into a large conglomerate and made the economy extremely fragile. John Casti, a complexity scientist, mathematician and entrepreneur, propounds in his recent book, X-Events: Complexity Overload and Collapse of Everything (2011) the vulnerability of a multi-nation interaction and an impending crisis.
The Linchpin Theory expounds the existence of certain unpredictable and non-repeating incidents defined as X-Events. These may range from natural occurrences to a man-made situation. He proposes that such events act as a linchpin in the global scenario and if the linchpin fails, it can lead to a domino effect with catastrophic implications. This theory intends to gather our attention and overcome lack of insight to such events since they fall out of the scope of traditional science.
With reference to the hypothesis, the past has witnessed some of the most devastating tragedies that can be linked to this theory. Casti exemplifies the occurrence of the Global Financial Crisis 2010 as an unpredictable phenomena wherein the X Event was the downfall of Icelandic financial institutions. The significance or the relative influence of Iceland’s economy or banking sector was beyond the scope of regular attention and could most certainly not be among the most obvious reasons for a global financial crisis. The outbreak of the Second World War was an event that kicked off a series of events that cost lives of millions.
The Linchpin in this tragedy was the Archduke Ferdinand of Austria and his assassination became the X-Event. The complexity of the situation can be observed in the vulnerability of extremely turbulent political regimes across the globe and the tumbling balance of power between rival governments in erstwhile Europe. A lesser known fact is that Ferdinand was not the originally conceived target. Thus, much heed wasn’t paid to ensuring his protection. The consequent domino effect can be explained by the pronouncement of war on Serbia by Austria while the allied countries followed suit. What happened next, remains an infamous history.
- Second World War:
Linchpin & X Event: Assassination of Archduke Ferdinand
Domino Effect: Austria declares war on Serbia –> Germany declares war on France –>Germany invades Belgium leading Britain to war –> Austria invades Russia
- Financial Crisis 2008:
Linchpin & X Event: Fall of Northern Rock, Iceland
Domino Effect: Fallout of Bear Sterns –> Lehman Brothers –> JP Morgan Chase –>Morgan Stanley –> Merrill Lynch –> American and global economy
This theory is relatively unexplored and new to economic relevance and scientific evaluation. From how I perceive it, this is an attempt by John Casti to indulge us in a world of the unknown and seek insight to something that is hidden beneath layers of cross-cultural and multi-national interaction. This theory could be a way for us to prevent repercussions of complexity and strike a balance in an ever growing world economy.
By Pratishtha Khattar