The Failure of Networked Systems: The Repercussions of Systematic Risk

aeldric discusses The Failure of Networked Systems: The Repercussions of Systematic Risk. He describes how an efficient system is more susceptible to systemic failure than an inefficient one. The pursuit of cost efficiency drives all components to operate at near-criticality.

This impetus towards maximal cost efficiency has been well known since before Marx's analysis of Capitalism. It is an inevitable consequence of the Capitalist production process. Competition drives profits lower, thereby forcing cost reductions.

The problem with a system operating at near-criticality is that is very vulnerable to "shocks". A minor change in an input or operating parameter causes the system to collapse. Actually, the system reorganises itself into a different equilibrium state which is no desirable to the users of the system.

In other words, the system undergoes a revolution. A new order has replaced the old order. Whether the new system is beneficial to the users of the system is immaterial to the operation of the system. The system has reorganised itself to accommodate the system inputs and operating parameters.

Since the inputs are external to the system, the only things that can be changed are the operating parameters. In a human system, these operating parameters are known as social relations. Theses are the rules under which we interact with each other on a daily basis.

To change a system that is working is not feasible because of the inherent risk in adjusting the operating parameters. To change a collapsed system is more feasible because of the desire to return to normalcy.

Sometimes, the system inputs are feedbacks from the system itself. Removing or adjusting the impact of the feedback can restore a system to desirable operating conditions.

In a Capitalist system, the most potent feedback is profit. We can eliminate profit through nationalisation, or adjust the impact of profit through taxation.

In other words, lower corporate taxation can lead to systemic collapse through unfettered feedback. This is the cause of the current crisis. The profits gained through home and commercial mortgages exceeded that of manufacturing leading to the distortion of the Capitalist economy.

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