I've been thinking over the past few weeks about two seemingly unrelated phenomena. First, the fact that humanity has been extraordinarily lucky to enjoy 12,000 years of climate stability. This stability provided the backdrop for increasingly complex civilizations and stunning gains in technological and material conditions. While we're acutely aware of the weather at any given moment, it's considerably harder to look back at history and appreciate the climate conditions that set the stage for our current material wealth.
The second is monetary policy's connection to economic growth. Financial markets seem to pay the most attention to monetary policy when it's furthest from equilibrium, contributing to booms or busts. And yet stable monetary policy (defined as creating equilibrium conditions, not stability of interest rates per se) provides the conditions for long-term business planning and innovation - the very ingredients that create wealth for asset owners over the long run. It's easy to pay lip service to the "magic of compounding" without giving full credit to the conditions that allow such compounding to occur.
The key point here is that background conditions are incredibly important, but far too easy to ignore. We observe phenomena without fully grasping the systems behind them. Donella Meadows defines a system as "an interconnected set of elements that is coherently organized in a way that achieves something", and it turns out that a decent chunk of this blog has implicitly been devoted to understanding systems. After all, our bodies, investment portfolios and football teams are simply different types of systems. But I suspect I'll be spending more time in the next few months trying to thinking about systems generally - so stay tuned. In the meantime, here are some preliminary thoughts on how we can learn more from systems.
1) Start by paying more attention to systems. Some of these systems are artifacts of natural processes. Others, though, have been actively shaped by people with an agenda. I really like the tagline of the podcast "99% Invisible", which describes itself as being about "all the thought that goes into the things we think about - the unnoticed architecture and design that shape our world." Without lapsing into conspiracy theories about shadowy power brokers, we can still pay more attention to "soft" infrastructure, in the form of climate, society or policy. This isn't always easy. For a variety of psychological reasons, it's easy for us to miss the forest for the trees. But I also suspect Western education systems exacerbate this by favouring "science, logic, and reductionism over intuitionism and holism", to use Meadows' phrase.
2) Once we recognize these systems, we can take steps to frame ones that are better for us. Quoting Meadows again, "once you start to see the events of the day as parts of trends, and those trends as symptoms of underlying system structure, you will be able to consider new ways to manage and new ways to live in a world of complex systems." This links with two of my other interests. Mindfulness gives us the introspective tools to analyze our lives, while the "little bets" philosophy lets us experiment with small-scale systems. This is a powerful combination, offering us the chance to be proactive, rather than merely reacting to existing systems.
3) Be humble about the limits of "designing" conditions. Many systems are sufficiently complex that altering them has unintended consequences. Joni Mitchell and Janet Jackson had it dead right when they said, "Don't it always seem to go that you don't know what you got 'til it's gone?" It's far easier to design an individual investment plan or a building than to move a large organization. I was struck by an interview with Mark Zuckerberg where he acknowledged that as Facebook grew, its mantra had to change from "Move fast and break things" to "Move fast but don't break the infrastructure." This is even more important for people trying to create widespread social change. The Great Leap Forward and the war in Iraq were perpetrated by people with the hubris to believe they understood and could change entire social systems. I'm constantly reminded of Hayek's quote that "the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." Some systems are too complex and too intractable to be designed. The trick is to identify these, and instead come up with methods of dealing with this complexity. We should at least learn this much from history.