Building Aggregate Agility ... By Continuously Tuning Increasing Numbers of Inter-Dependency Functions ... With Increasing Numbers of Automatic Stabilizers

Finance and Economics Discussion SeriesDivisions of Research & Statistics and Monetary AffairsFederal Reserve Board, Washington, D.C.
Inequality and Poverty in the United States: the Aftermath of the Great Recession - July, 2013 

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Washington U faculty papers
Inequality, the Great Recession, and Slow Recovery - Jan, 2014

What do these data mean to you?

To me, they're simply interesting data, produced too slowly to be of functional use in a still missing RESPONSE to changing context.

What are we doing here? How are we doing it? And why are we waiting so long?

Instead of documenting the bad outcomes, why aren't we just focussing on improving policy in real-time?

Something is completely out of whack in our policy apparatus, and our civics.

We would NOT use economics to train jugglers! Why try to use them to advise policy development - which must, by definition, be either agile, or irrelevant?

No offense to economists ..... but the entire field of economics could - eventually - precisely document how every war was lost, but couldn't EVER actually win one, since that requires practice at a different skill set?

How does economics help us succeed at juggling, or even in real-time operation of a business venture? Let alone national policy?

This situation should make all citizens realize that the economics profession can never instruct us on how to ride a bicycle. It can only precisely document (eventually) why we fall off? :)

Let's get real. The act of falling off a bike is self-documenting.

As are depressions. 

Keeping an aggregate on a bike (or any growth path) requires us to constantly train increasing numbers of automatic stabilizer functions to respond and adjust in real-time ... to real-time data sets, called feedback.

Keeping all feedback data sets within tolerance limits is how complex systems juggle internals in order to survive context. To ALWAYS ensure that ALL internal functions can be kept within local tolerance limits, we
1) generate tremendous diversity, and
2) generate large numbers of inter-dependencies, and
3) demand distributed - i.e., "fiat" - adjustments to adequately distributed feedback,

4) all in order to thereby maintain distributed, systemic resiliency.

That is what agile aggregates, and Democracies, do - when they survive.

And they do it all in either real time ... or else.

The logic of social species is to guarantee survival of all components PLUS the aggregate, by distributing all stresses experienced by the aggregate. If all components adjust a little, then no component EVER need be stressed beyond survival tolerance limits.

So why on earth are we killing our MiddleClass? Is there a plan? Some Desired Outcome? Whose?

Social organization boils down to building aggregate agility by continuously tuning increasing numbers of inter-dependency functions. That's not rocket-science, only distributed PLUS aggregate practice at tuning inter-dependencies.

Where does the field we call economics fit in this social logic? 

Seriously. The very application of orthodox economics is entirely too academic, and inadequately operational. Since our context changes unpredictably, our aggregate reality is that NO model of anything works for more than a fleeting instant. Survival is a dynamic, unpredictable art of extension by highly distributed innovation, and NEVER a static model.

Just set functional tolerance limits for all components ... including education, nutrition, liquidity, employment .... and let distributed, not concentrated, adjustments be mediated through existing and added Automatic Stabilizers. It should be easy.

Where does that leave the entire field of economics? It has clearly been a colossal, operational mistake to even attempt to use economists in policy offices, rather than just having them tally accounting reports after the fact, and spend more time on the golf course.

Accounting & economics involve fairly boring tracking of basic fundamentals, and NOT dynamic exploration of emerging options.

Our survival is a simple question of keeping boring fundamentals separate from the emerging options which we must explore?

That means setting goals, keeping boring fundamentals as fundamentals vs dynamics, and making any and all distributed adjustments IN REAL TIME, that are necessary for aggregate exploration of aggregate options.

Once seen that way, our key Desired Outcome is to maintain aggregate resiliency precisely by maintaining all of our social components - and especially our Middle Class - safely within operational tolerance limits.

If all citizens focus on avoiding application of excessive stress on other citizens, then we'll never have to worry about our aggregate resiliency. That is the logic of all aggregates.

It is the logic of social species.

It's also the logic of statistical process control (distributed control of net variance).

And the logic of diverse expressions of military science (force readiness by managing frictions generated while aligning highly distributed decision-making). Believe it or not, armies at war are much more democratic than our electorate at home.

And, by the way, it is the logic of using automatic stabilizers in fiscal and social policy.

In conclusion, to maintain National Security as national resiliency, functional policies are those that 

a) provide us with freedom to execute distributed expression of more Automatic Stabilizers, and 

b) guarantee us freedom from the stress inherent in the clash of random ideology. 

In short, make coordination of a more perfect union, not civil or class war.

Building Aggregate Agility ... By Continuously Tuning Increasing Numbers of Inter-Dependency Functions ... With Increasing Numbers of Automatic Stabilizers.

That is what evolving systems do. That's all they do. That simple logic allows evolving systems to solve seemingly any challenge ..... by throwing more nested layers of the same logic at whatever options emerge.

Any and all ideology just gets in the way, and slows down distributed adjustments.

Why can't we teach this simple paradigm, to all students, by age 10?

Steering the Expanding Responses of Growing Aggregates ... To Accelerating Data Flows (we need a more distributed steering wheel)

Warren Mosler indirectly raises a widely ignored topic, in his query:

"Who would have thought that with purchase apps down 10% year over year [... that] sales would fall?

So, it seems [as though] borrowers aren't stepping up to [keep leveraging] the higher mortgage rates demanded by lenders [who are] fearful of future fed rate hiking?

That means the economy stalls and the fed doesn't hike?"

Hmmm. Changing aggregate data and unchanging institutional responses. Warren's query actually brings up a VERY OLD QUESTION. How do we make sure our institutional methods change soon enough to matter? How do we change ourselves from what is, to what can be?****

Why did the distributed Luddites ever START beating their heads against the wall?*

Answer: They never really STARTED, they just finally realized that they WERE!

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*Maybe they finally realized that they all needed to get a better view?
(A view of what the liberal "fools" were saying was on the other side of their Luddite paradigm block?)**

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** That, in turn, actually brings up another, very old question in organizational or systems science. 

"How ARE newly emerging organizational demands first vaguely 'sensed,' then slowly discriminated and eventually formally and productively represented by a growing aggregate - as re-invented institutional methods?"

As we'll see, the answer boils down to hierarchically tuning our array of emerging, aggregate inter-dependencies to each, transient context we encounter.

In practice, that boils down to developing methods for recursively re-inventing our institutional methods, no matter what happens.

Wow! That sounds like a difficult, endless cascade, so how do we actually DO that? Hmm. We've obviously been doing it for a long time, so it can't be as impossible as it sounds. Let's start with the following approach. Maybe it's largely an issue of reviewing the boundary conditions.

Evolving systems face an insatiable demand - to constantly organize on yet a larger scale. We know that demand occurs, and we've studied many of the basic mechanisms in unique settings. Yet we have NOT carefully considered the INITIAL and other EARLY steps in a constantly recurring cycle of cultural development - nor imagined the END conditions if our current context changes. Hence, it's hard to know when we're beginning to organize faster/leaner/better, vs being too slow to recognize that we need to, and hence guaranteeing that we will later ruefully regret allowing that failure.

How difficult is group foresight? What's the payoff for organizing exploration of group options sooner? And what is the penalty for neglecting to explore group options? Oh, survival vs death of cultures? These are very old questions.

How soon can we determine whether our new, larger population and culture (the ship you're on) is safely, irreversibly moving along a survival path, vs past the point of no return down a dead-end, death spiral? Are we closing the door on our own future evolution? Are we becoming Epimetheus, or remaining Prometheus? How would we know? Can we clearly identify first or early steps that discriminate the alternate, organizational responses that define those diverging paths... in an electorate that gets larger every year? Do we even have a prior framework to embrace and extend? And if we do, are we paying any attention to it?

For example, we commonly declare that the FIRST step in embryology is division of one egg cell into two cells. Most citizens vaguely presume that All divisions after that involve divergence steps, culminating in the many cell types of the human body, and the multiple organs those cells aggregate into.

Yet we also know that variation at every step can occur, even in that "first" step, with the result being the occurrence of twins, triplets or even quintuplets.

Even further, we know that a prior step involves "activation" of the egg cell - usually via molecular docking of a sperm cell, although indirect methods can also work, and produce clones.

There's a long history of where the sperm comes from, of course, and how the chosen one arrives, and what closes off the window of opportunity to others. All this points out that what is and isn't the FIRST step in organizational re-development ... is always in the eye of the investigator seeking some adaptive insight. For now, let's not go further back, into the organizational assembly of all the molecules that go into re-creating every egg cell and every sperm cell. For now, that's going back further than we can benefit from reviewing.

Instead, skip up to human cultures. What, for our purposes, is the FIRST step in re-organizing a human culture - or market - on a larger scale? During the lifetime of you, your kids and your grandchildren the USA is going to go through expansion steps quite analogous to the early divisions of an activated human egg cell. How will our current, FIRST steps in renewing vs aborting our national development be viewed, by posterity?

How far back do we look, in order to gain the most benefit for the least amount of painstaking, recursive re-examination ... of our own, cultural re-development cycle?

Let's state it this way. Aggregate re-organization tasks emerge - and become a significant, detectable aggregate "potential" - long before organized paths for draining that building "potential" formally coalesce. For example, the early steps of cell division in an egg cell are profoundly affected by both the NET presence AND distribution of either toxins or nutrients, and all subsequent development is skewed by both factors. How early in our cultural development process we recognize & mount responses to emerging cultural toxins & nutrients, AND THEIR DISTRIBUTIONS, is determining - as we speak - whether our nation's culture evolves and thrives, or is harmed and stunted.

Network response features are themselves always network size dependent (unique for each aggregate size),*** so it is not at all clear how to orient THIS electorate to the benefit of FINDING paths to tap emerging returns on still-emerging aggregate coordination - other than through group practice! We always need entirely new methods for distributing cultural "benefits," in order to quickly and continuously make it self-evident to all people - how & why to align increasingly distributed local actions to aggregate benefit. Molecular gradients guide embryological development of humans. Social gradients presumably guide the continuous embryological development of human cultures. 

To continuously improve our quality of distributed decision-making, the distribution of all benefits must be continuously improved.

Once stated, that is a simple enough concept, similar to engine tuning, even though the exact details always vary. For example, the details of engine tuning practices diverge completely as you go from a 1-cylinder to a 4-cylinder to an 8-cylinder internal combustion engine. One consequence is the now familiar V8 design. Yet "V" had no relevance whatsoever to a 1-cylinder engine, and had to be discovered through trial & error. As our population grows, what will a V400 million economic engine look like? It'll undoubtedly replace "V" with some other concept which has no immediate relevance to each of us personally, or even all of us in our current USA population of ~320 million.

All this drives home a simple realization. As an aggregate, we're simply out of practice at organizing on a larger scale, and haven't been training our NET selves to even orient to that task.

How WOULD we train ourselves to aggregate task? Trial & error, of course. Let's start by at least posing the question, and then fumble through finding out - while avoiding crudities like triggering more wars. Right now, through politics, we're only discussing inanities masquerading as national policy. As a result, we're clearly going backwards, purely for want of trying enough other directions.

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*** Every time an aggregate adds new members, it's population "N" grows by some rate, but the interdependencies which the aggregate has to re-organize grows by N-factorial? Worse, the characteristics of the newly emerging interdependencies are based only partly upon prior component characteristics, and partly upon entirely novel characteristics of the new aggregate size itself. 

Clearly, no aggregate has the pre-existing computational power to predict HOW best to adapt it's own developing capabilities. The solution to that chicken-&-egg task has to be gradually discovered, through continuous, fully distributed, trial & error. 

Skip the math details for now: Without guaranteeing enough DISTRIBUTED liquidity & degrees of freedom for our entire diversity of all citizens, we in the USA cannot maintain adequate rates of aggregate trial & error. There's a deep, logical reason why we need not just FULL employment, but exhaustive degrees of freedom too. Our quality of distributed decision-making generates more than the simple sum of our net-freedoms, net-work and net-review.

A FREELY overworked electorate doesn't just go to bed deliriously happy every night ... it also adapts far faster. Given that it gets a good nights sleep! - which brings up the issue of the optimal work duration.

~5 hours of work?

+ ~5 hours of public discourse? 

+ ~8 hours of sleep-stages?

That's what many anthropologists say is the historic norm for our evolving ancestors. There's no evidence that aggregates working longer hours gain any further NET Adaptive Rate for their effort. In fact, cultural analysis & Adaptive Rate decline with excessive work/analysis ratios, just as analog-computing-models predict.

Without enough recursive review, overworked analog aggregates [human or neuronal or machine] can't re-run enough group-discourse, or CNS, or CPU activity iterations offline, to refine signal-to-noise discrimination. Without that, they can't keep parsing the overwhelming flood of data. Group intelligence, like any analog "brain," has to use every off-line hour, digesting what can be safely ignored in tomorrow's data-deluge.

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**** ps: Conservatives vs Liberals? They are a hysterically funny comedy team. Just two idiot savant aggregates, comically arguing over what IS vs what CAN BE. They're all correct, and all oblivious to the fact that they're joined at the shoulder. Blessed are both, for only some of each shall be co-selected.