Negative Feedback, the Tragedy of the Commons, and Complex Systems

We were reading John Hussman’s weekly essay The Reality of the Situation (John is one one of the real straight shooters. He is an economist but uses economic theory to make sense of what is going on, similar to Lacy Hunt who should also be at the top of your reading list), when we felt an irresistible urge to try and bring a number of things together. In the process, we hope to shine some light on an intuition that has bothered us for a while. Warning: this post may ramble but it will be rewarding – certainly for us.

Negative and Positive Feedback and Complex Adaptive Systems

We start with something that Mike Shedlock attempted to set the pundits straight on: negative feedback. A system has negative feedback if part of the output of the system is looped around to form an input such that the system settles down to an equilibrium state. Positive feedback occurs when the looped input causes the system to become more unstable or ‘run away’.

When most writers and pundits talk about the effect of austerity on the Greek economy and the deficit, they use the term ‘negative feedback’ to describe a situation in which these effects reduce revenues and increase social program spending. This in turn increases the deficit and reduces economic performance, in a downward or death spiral. (Spanish example)

This is technically then positive feedback. We might call it negative effect positive feedback. We suspect no analyst or pundit will alter his vocabulary. The important point is that isolated systems experiencing positive feedback, self-destruct.

A complex adaptive system (CAS) is a system composed of a relatively large number of interacting components. It has the property of self-regulation or adaptation. Most natural systems are CASs and most natural phenomenon are the emergent properties of CASs.

Most of Western thought has been a development of linear, deterministic thinking. It has no capacity for predicting emergent phenomena. This type of thinking is the reason why linear prediction and extrapolation fails and that most people are ill-equipped to think about CASs such as climate or economics.

The Tragedy of the Commons

The Tragedy of the Commons (see The Tragedy of the Commons, by Garrett Hardin (1968) for a deeper discussion) is an example of such traditional analysis. Briefly, it refers to a community with a common pasture and uncontrolled access to its use by community members. Each member’s greatest interest is to graze as many cattle on it as he can. The pasture is overgrazed and destroyed.

This is a wonderful simplistic thought experiment but it rarely if ever happens in nature. One of the early biological systems studied was the relationship of a predator and its prey (example). Acting purely out of self-interest, survival through the need to eat, their populations rise and fall but never to complete destruction.

If the community and its commons are left in isolation, the community will adapt to a depleting commons through disease, starvation, warfare (fighting) before the commons is completely destroyed. The commons itself will adapt as less desirable plants move in where the preferred food plants were and the grazing pressure is reduced as livestock die. Over a longer period, mutations occur that produce species more suited to the modified ecology.

We know the commons will survive. We can speculate but know little about the changes that will happen and even less about the timeframes. However, when outside interests intervene, then the commons can in fact be threatened and destroyed. A support program by the World Bank or UN may provide emergency feed for the cattle so that the grazing pressure is maintained, while the commons is destroyed.

Applying Glue

Negative feedback is the property that allows natural systems to persist in the face of environmental change. Natural systems that undergo positive feedback self-destruct and remove themselves from the gene pool. The size and frequency of earthquakes and forest fires, the distribution of gas stations in cities relative to their size and a host of other natural systems have been shown to obey a mathematical construct called a power law.

Economic behavior is the emergent property of the interaction of a multitude of individuals, institutions, corporations and governments. The strange thing about complex and hence natural systems is that isolated components can be modeled deterministically but the interactions among components cannot. And economics is all about the results of interaction of components.

 

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