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Opening the Window Labeled "Financial Crisis"

A mailing by Tom Atlee to the CII list Sept 27, 2008

I've been reading a lot of critiques and suggestions about the current financial crisis. I have neither the expertise nor time to analyze them all and send out a proper briefing. But I find myself highly dubious -- even suspicious -- of a $700 billion dollar bailout. Highly respected economists are, too. Not only are conservative free market Republicans and liberal unions balking, but economist James K. Galbraith, a University of Texas economist and son of the late economic historian John Kenneth Galbraith, for whom I have tremendous respect, calls the crisis "hype". And Thom Hartmann's article How Wall Street Can Bail Itself Out Without Destroying The Dollar makes it clear that there is at least one tried-and-true alternative that would be far healthier for us and future generations than the current proposal.

But there's something else going on with this, for me. That is the object lesson this provides about social systems.

I'd like to look at one systems dynamic in particular. It is one of the most widely recognized phenomena in systems science. FEEDBACK.

Positive (or "magnifying") feedback causes things to increase or decrease. The screeching electronic feedback between microphones and speaker systems is a common example. For a social example, consider all the ways that the rich tend to get richer -- especially when they aren't regulated or taxed -- and the dynamics through which poor people deprived of opportunity-supports tend to get poorer.

Now let's look at negative (or "balancing") feedback. This dynamic causes things to fluctuate within a desired range. The most common example given for this is a thermostat which turns the heat on when the room gets cold and turns it off when the room warms up. In social system terms, financial regulation and progressive taxes are forms of negative feedback, keeping greed and concentrated wealth in check so they don't go wild in ways that undermine broader social wellbeing.

This brings us to one of the main causes of this crisis. Former Senator Phil Gramm, working in 2000 (as Senate Banking Committee chair) with finance industry lobbyists, slipped a 262-page deregulation bill into a gargantuan, must-pass budget bill, which cut short any intelligent reflection about what the financial deregulation would mean for the rest of us. Most legislators were barely aware of what the bill -- called the Commodity Futures Modernization Act -- contained. Earlier, he had sponsored a 1999 bill that allowed banks, insurance companies and stock brokers to merge. His Commodities bill included deregulating "credit default swaps" which [explains Mother Jones magazine] "are basically insurance policies that cover the losses on investments, and they have been at the heart of the subprime meltdown because they have enabled large financial institutions to turn risky loans into risky securities that could be packaged and sold to other institutions." (For the fascinating story of Senator Gramm and all this legislation, see and

This whole situation is a lesson in distorted feedback dynamics which are rapidly degrading the civilization we live in.

When you remove feedback that balances a system's extremes towards healthy middle-ground, the extremes up-shift into "runaway" mode, hopped-up on self-reinforcing positive feedback loops. Pulled far enough away from equilibrium, the system spins out into a major collapse, literally tearing itself apart. "Solving" the current financial collapse by saving large institutions from the debts they incurred with extreme risk-taking is simply not smart systemic policy -- and won't likely last very long. This is not rocket science.

I understand that the proposed bailout bill luckily had some sensible systemic revisions, including making sure the bailout doesn't fund corporate executive mega-paychecks, and some return to regulation.

But there are real questions about whether it really shifted the system that brought about the "crisis".

Signficantly, Gramm's (and others') economic DE-regulation removed balancing and moderating dynamics that were -- for good reason -- in place since the Great Depression and earlier. The fact that these sane negative feedback policies have been peeled away over recent decades should alert us to dysfunctions in another set of critical systems -- our supposedly democratic system of governance and the political system that shapes how that governance plays out.

The fact that major legislation like Gramm's bill, the Patriot Act, the Iraq War authorization, and GATT and NAFTA could be pushed through using manipulation and legislative gaming -- often with few legislators even reading the bills involved -- raises serious questions about the way Congress operates. (I know this perspective is not new! But perhaps a systems view of it may be...)

One of the best commentaries on what we need to keep an adversarial majoritarian democracy functional can be found in an article by my father, John Atlee -- "Democracy: A Social Power Analysis" .

Interestingly, even though I seldom publicize it, it is the most popular article on the website -- and consistently shows up as the first or second listing in a Goggle search for "social power". Its key insight is that social power is ideally distributed in a relatively equal manner and, where it is concentrated, it must be answerable and balanced by other concentrated power. Since social power occurs in different forms, we find negative feedback loops like the bully pulpit power of a president being balanced by the web power of bloggers, or the financial power of corporations being balanced by the organizing power of unions and consumers.

Which brings us back to what's happening now. The concentration of financial and mainstream media power that has occured over the last several decades is seriously distorting most systems in our society.

This is not about Left versus Right, or Liberal versus Conservative.

It is about the ability of a system to sustain itself, following the natural laws of systems. "Power corrupts and absolute power corrupts absolutely." The more concentrated social power is, the more it can re-enforce positive feedback dynamics that increase its power, and interfere with negative feedback dynamics that help balance the system and keep it healthy.

In his monumental COLLAPSE: HOW SOCIETIES CHOOSE TO FAIL OR SUCCEED, Jared Diamond notes that civilizations often collapse because the elites whose power derives from social and environmental degradations protect themselves from the consequences of their actions -- until it is too late.

So there is another dimension to all this: Broken negative (balancing) feedback dynamics lead to runaway positive feedback dynamics which tear a system apart. We all have front seats to those dynamics playing out in our own world -- from collapsing financial institutions to accelerating climate change to email overload. When the intensity gets "too much", the system collapses -- and one or more other systems take its place. At such times -- when the system is "far from equilibrium" -- chaos dynamics take over and the opportunities for change become greatly magnified, such that small efforts can have profound effects. What was impossible before, when the system was stable, becomes suddenly possible.

In crisis, opportunity knocks very loudly. Opportunistic politicians know this: Recall what happened after 9-11. Many major corporations and big investors, as well, know how to profit from catastrophe -- be it hurricane, tsunami, AIDS, or the collapse of major banks. The original bailout bill was a handout to such folks, pushed by a narrative of crisis -- and it may still be. Naomi Klein's THE SHOCK DOCTRINE: THE RISE OF DISASTER CAPITALISM documents this dynamic.

So let's face some important questions squarely: What would make it likely that most social change activists and evolutionary agents would see (and prepare for) crises, catastrophes, and collapse as opportunities to move more rapidly and effectively towards a more just, sustainable, wise, and enjoyable society? And: How could systems thinking begin to influence an activist culture traditionally preoocupied with issues, wars, candidates, and local disasters?

What, in short, will help those of us wishing to co-create a better world to rise to the great Occasion of our era -- the unfolding of intimately interconnected systemic crises in every part of our world?

Things are getting very ripe, indeed, for those prepared for the harvest.

PS: Another subscriber, Diana Morley, sent the following, from Independent Senator Bernie Sanders of VT, which offers other (or should I say "additional") systems-conscious approaches to the financial crisis -- Sanders Proposes Surtax on Wealthy to Pay for Bailouts - Calls for Breakup of Businesses ‘Too Big to Fail,’ Stronger Financial Regulation

see also


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