unity without diversity is bad for everyone

It's not the size, it's the lack of diversity -- the world financial markets show us the risks of unity without diversity, and the 366 point drop in the Dow Jones last friday is just a taste of it.

There is also a risk in perverting the language that is not mentioned, as the term "hedge" used to mean "to make safer with a contrary bet" whereas today it appears to mean "to make riskier by highly leveraging the same bet".

Of course, once upon a time, a "bank" was a conservative, responsible place that had long-term plans and stability, not a place with a fortune that could rise or fall, as one shocked European banker noted, with the federal funds rate changing by one point for one quarter.

Here's the highlights from an article today that touches those points.

One World Taking Risks Together
New York Times
by Nelson D. Schwartz
Oct 21, 2007

HUGE financial losses in the United States spark fears in Europe.... the Panic of 1907, which culminated exactly 100 years ago today.

But this time around, it may take much longer to repair the damage and restore confidence than it did a century ago. It’s not only that the sums are larger now...It’s also that the breadth and complexity of today’s global markets create risks so great that no group of business leaders — or even a single country — can control them.

It wasn’t supposed to work this way. Interconnected global markets should make the world economy more stable, according to traditional economic theory, with risk spread more widely and strength in one region offsetting weakness in another.

“In practice, we’re not seeing that happening,” says Richard Bookstaber, a veteran hedge fund manager and author of a new book, “A Demon of Our Own Design: Markets, Hedge Funds and the Perils of Financial Innovation.”

Although international financial links are nothing new, as the Panic of 1907 shows, what’s different now is how closely international markets are correlated with one another.

“As markets become more linked, diversification doesn’t work as well.”

As a result, Mr. Bookstaber argues that today’s global financial markets may actually be more risky than in the past. That’s because the same types of investors are taking on the risky bets and then simultaneously heading for the exits when trouble comes, even if they’re on opposite sides of the world.

Actually, there's nothing wrong with this aspect of traditional economic theory, only with how well people read the book. Statistics says that the overall risk will go down if the individual risks happen independently - which is to day, it's a truly diverse world, where knowing what's going on in place A doesn't tell you what's going on in place B. And that is true.

But if everyone uses exactly the same strategy, the power of diversity reduces to the leaf-in-the-wind behavior of one individual, just with everyone else along for the ride.

This is also why tyranny doesn't work, and cannot work as a governmental system for very long, or why we see the same risks in "Theory X" companies that may be huge but really are only slaves of a few guys at the top with a big magnifying glass.

Diversity is not what unity must overcome - it is what gives unity strength.

An ecology with a single kind of plant in it will collapse as soon as the first virus figures out where lunch is located. Any global world with a single kind of thinking is equally unstable. This is a basic law of nature and statistics and cannot be overcome by wishful thinking or by anyone who was "right in the past."

Including diverse cultures and people in the decision-making process is not "accommodation" -- it is recognizing a case where all of us are actually much wiser than some of us.

It also illustrates the need for actually educating people so that they actually understand basic concepts and don't simply try to echo mindlessly what others are doing. Without "independent investigation of the truth", the system breaks down.

Again, let me refer to the basic principles held and advocated by the Baha'i Faith, as a set of guidelines I urge everyone to investigate independently. These are the kinds of things we should be studying in school.

Whether it is "race unity" or "unity of religions" the "unity" the Baha'is advocate is not the false "unity" achieved if everyone comes around to my point of view - it is the true unity that emerges from everyone keeping their independence on all but those things we need to stop killing each other and talk like adults about common issues.

It involves submission to God, not to some different self-appointed leader, and just enough civilization to have a "learning culture" that doesn't rip itself to shreds over the fact that the world appears very different to different people and at different times.

Global domination or "conquest" by any one nation or culture or way of thinking is a recipe for disaster, as the financial markets are telling us over and over. We do not all want to be clones of any one approach. Those who dream of global conquest are chasing a phantom that only exists in dreams, because simplifying any system that much will cause it to collapse.

That's the key lesson that we need to understand. Systems require diversity for the magic to work. You can prove it with math and you can simulate it on computers. Or we can keep on watching what happens around us when we try to deny that natural law - about like trying to deny the law of gravity.

This is just critical at this stage in nation-state development, where huge countries are in the middle of preparing for a massive confrontation over who will "dominate" the world. No one can "dominate" the world without destroying it and imploding. We are gearing up on a fool's mission that cannot possibly succeed for anyone. There will be no winners of that fight.

The reason world conquest has failed in the past is not that it was incomplete, but that it tried to be too complete. It squeezed the life out of all it touched with a unity without diversity. It didn't work not because of some error in execution, but because the whole idea is fatally flawed. It's impossible. It can't ever work, regardless how brilliantly executed. We need to let go of it.

So here's the take-away lesson.

All the frequencies matter. There's no point in reading the "news" if you don't spend equal time reflecting on the "olds", or you'll end up with a false impression of what's going on, really. In fact, as the Times article begins, we should have learned more from exactly 100 years ago friday and what happened then. Most of what is around us is actually more "old" than "new".

I remember watching two experts play the board game "Go" one day. Every now and then what looked like a surprise move would take a whole army and change the board. When it was over I comment on how much the board changed from move to move. They both looked at me baffled and replied that the board hadn't changed by more than half a point in the last 100 moves. I just wasn't able to see what was really going on by looking at what was changing. I needed to stop looking at the "field" and look at the "ground" instead for a while.

In regards to world conquest? To quote the "Whopper" computer in the old movie "War Games" -- "Hmm. Curious game. The only way to win is not to play."

(photo credit: moto browniano on Flickr)

Thoughts on the financial markets

Some reflections on the state of the world financial markets, which, despite the apparent stabilization of the stock markets, seem to be in a state of back-room panic.

But first, some thoughts from the Old Testament of the Christian Bible:

"Where there is no guidance, the people fall,
but in abundance of counselors there is victory."
(proverbs 11:14)

"He who trusts in his riches will fall,
but the righteous will flourish like the green leaf."
(Proverbs 11:28)

"Adversity pursues sinners,
But the righteous will be rewarded with prosperity"
(proverbs 13:21)

"Righteousness guards the one whose way is blameless,
But wickedness subverts the sinner."
(Proverbs 13:6)

"There is a way which seems right to a man,
But its end is the way of death"
(Proverbs 14:12)

"The fear of the Lord is a fountain of life,
That one may avoid the snares of death"
(Proverbs 14:27)

"All the ways of a man are lean in his own sight,
But the Lord weighs the motives"
(proverbs 16:2)

"The mind of a man plans his way,
But the Lord directs his steps"
(Proverbs 16:9)

"Pride goes before destruction,
And a haughty spirit before stumbling."
(Proverbs 16:18)

"The horse is prepared for the day of battle,
But victory belongs to the lord"
(proverbs 21:31)

"Do not rob the poor because he is poor,
Or crush the afflicted at the gate;
For the Lord will plead their case,
And take the life of those who rob them."
(Proverbs 22:22)

"Then you will know that I am the Lord when I have opened your graves and caused you to come up out of your graves, My People.
And I will put my Spirit within you, and you will come to life, and I will place you on your land. "
(Ezekiel 37:13-14)


"And one of them, a lawyer, asked Him a question testing Him.
Teacher, which is the great commandment in the law?
And He said to him, 'You shall love the lord your God with all your heart, and with all your soul and with all your mind.'
This is the great and foremost commandment
And a second is like it, 'You shall love your neighbor as yourself.'
On these two commandments depend the whole Law and the Prophets"
(Matthew, 35-40)

=================
Rephrasing - remaining connected to God and mankind is required for preservation of wealth and "life". Without those, "death" sneaks in and takes over. The hazard of wealth is when it causes pride and arrogance and belief in the power of self and turning away from caring for the needs of others. The wrong pathway appears "right in your eyes" unless you are spiritually tied into God and humanity, and the end of that wrong pathway is the loss of all wealth and "death".

Put another way - the basic state for matter in the universe is "dead", in which state the laws of physics and thermodynamics rule and ensure that there is only one way things can go, and that is downhill, the only exception being if there is some outside input. Love of God and humanity, and being "moved" to action by that motivating spirit, is exactly such outside input. Without it, even what you seem to have securely in hand will simply decay and collapse, and, in fact, be trashed by your own hand in foolish schemes and plans driven by pride and arrogance and foolishness and unwillingness to consult with others or listen to their good advice.

Without the psychological and cognitive framework of loving God and others, and some slight nudges from the spirit of God, "bad" pathways will look to you much more attractive than "good" pathways, and they will be indistinguishable to sight, logic, or even computer analysis by Nobel Prize winners and their Hedge Funds, and your fate is sealed by the laws of physics.

Even in hindsight, you will say "How could we have known?" and be technically correct, in that there was no way to compute that outcome, although, if you had stayed with loving humanity, your perception and judgment of exactly the "same facts" would have been different, and you could have avoided that pathway and calamity at the end of it.

It is almost as if hairpin turns without guardrails are put into the roadway on purpose, so that those with eyes to see know when it is time to turn, and those operating on blind models drive off the cliff. Very much like a security system put in place to prevent take-over by robots or computers or "Sky-Net" of Schwarzenegger's "Terminator" movies.

Those without any sense keep on betting their entire winnings to date, plus whatever they can borrow, on the same number on the roulette table, because they are "on a roll" and "nothing can go wrong with their get rich quick" scheme. And, in an ironic twist, the more wealth is acquired and squirreled away so that "others cant get to it", and the more one turns away from humanity to an obsession with "wealth accumulation", the less and less "sense" one has of the ample clues God gives that it's time to change directions, making the outcome ever more and more likely, and the amount staked on each wager higher and higher.

Turning away from the "common sense" that only comes with loving God and humanity thus brings about a series of events in a feedback loop that increase blindness, paranoia, and the "need" to make "more money" and take ever higher and higher risks.

The result is a classic "Markov chain" model known as the "Gambler's Ruin" -- "each spin of the wheel, bet an amount twice the size of everything you've lost so far, and sooner or later you're bound to win!" is the thought and the strategy. What the strategy lacks is a "stopping place", so that, having won, the gambler now, sensing "momentum", bets again and again, larger and larger stakes, until eventually the inevitable out come occurs - everything is lost and they are thrown out of the game.

What seems to drive this is a sort of addiction, a "greed is not enough" sense that they only acceptable stopping place is when everything in the universe is "owned" and taken out of productive use and stored in one's vault "safely." A million dollars is not enough. A billion dollars is not enough. A trillion dollars is not enough. World hegemony is not enough. Whatever comes next is not enough. Bet again and raise the stakes, bet again and raise the stakes, until BLAM - bankruptcy ends the series.

Or, in the financial markets lately, a corporation that employs 500,000 people and makes 7% profit on top of that is considered a "loser" and should be dumped and the CEO fired because they should be making 17%, or 27%, or 72% or 720% or 7,200%, or 7 billion percent - it goes without end until the end is brought on externally. The whole financial market falls into a self-hypnotic dance pursuing wealth that isn't really needed for reasons that, after the fall, are entirely unclear, even though they made so much sense at the time.

The hypnotic spell can be broken by love of others, interruption of the "run" to spread out some of that wealth to assist other people who need it - but the hypnosis goes the other way, and makes it seem sensible that, instead, even everything everyone else has should be collected up and bet on the next spin of this wheel on a lucky run that cannot possibly ever fail.

Until it does.

At least, that's the risk that it seems to my reading that the Book of Proverbs has written down, for those who have ears to hear it.

Mathematically, any given data set has an infinite number of interpretations. "Sanity" is multivalued, and Godel's Theorem assures us that, from the inside, we cannot possibly ever hope to tell by looking whether the "sensible" course we're following is globally sensible, or just locally sensible. Only with consultation and with love for others is something additional added that gets us up out of Godel's maze.

As Dennis the Menace said "How come dumb stuff seems so smart when you're doing it?"

That's a very important and profound question.

As Snoopy said "Did you ever notice, that if you think about a problem at 2 AM , and then again at noon the next day, you get two different answers?"

Again, a very profound observation.

Brilliance, high IQ, Nobel Prizes, "momentum", whatever are not sufficient to break this binding constraint. They lead to arrogance and a closed feedback loop that spirals into total ruin.

It's easy to model, and easy to see from the outside, and impossible to detect from the inside.

That's what we're being warned about. Those with wide social interconnections who cannot be bum-rushed into ever increasing frenzy of action can avoid being sucked into that vortex of addiction and "death". Those who chop their connections to humanity that are "just slowing them down" do in fact keep on speeding up -- until their flywheel explodes.

It was true 3000 years ago. It's still true.