What is the Black Hole of Finance?
Western education has been riddled with reductionism (breaking down all systems into smaller pieces to comprehend them fully) since the time of the “Enlightenment.” Academia has created silos of information with experts atop of their field who speak of little besides their own areas of expertise. The problem with such a curriculum is that we fail to view problems on a large, systems level, adding to breakdown across the board. Looking at NYC’s waste treatment system as a whole, when it rains 2 inches in an hour, all of our sewers flow into the Hudson and East Rivers. 10 million people’s excrement ruin our immediate ecosystem, all because we do not have a macro perspective on systems analysis. Just as our fecal matter is not handled properly in NYC, so is the case with the way capital and risk are accounted for and measured in the global economy.
The Santa Fe Institute came to fruition in 1984, as an antidote to the reductionist ways of academia. The goal of the founders was to create an institution dedicated to the interdisciplinary study of complex systems. High level biologists, statisticians, mathematicians, (currently) economists and others contributed to analysis of systems such as he World Wide Web, complex economies, and many other complex organisms.
The Black Hole of Finance was a speech given at NYU on November 18, 2010 by SFI’s Seth Lloyd. Dr. Lloyd, a well known physicist who admits to not being an insider in economics, watched his life’s savings plummet in the crash of 2008, and stated “This really reminds me of the formation of a super massive black hole in the Universe.” He began studying economic systems as complex organisms, and found mathematical similarities between black holes and economies highly dependent on finance. Debt’s ability to pull systems into collapse has similar characteristics to gravity’s pull in the formation of black holes.
*III Complexity Science