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Complexity, Short Term Volatility, The Exponential, And The Limits Of Human Cognition

The problem with complex systems, such as Climate Change, the Energy System, and Financial Systems, is that they tend not to move in straight lines. Instead, they tend to oscillate around a trend and can move in a counter-trend fashion for significant amounts of time. The “Climate Change Pause”, and “Counter Trend Stock Price Rallies” are examples. In the same way that climate change skeptics jumped on the “pause” as a justification of their beliefs, buy-and-hold investors jump on counter-trend rallies as proof of a new bull market and therefore a reason not to sell (and pessimists jump on periodic falls in prices during a bull market as a reason not to invest). Such volatility may actually increase near the boundaries of a current equilibrium state, with a system behaving chaotically as it transitions to a new stable equilibrium. Such behavior has been seen at the transitions going into, and out of, ice ages[1]. Arctic sea ice may currently be going through the same type of chaotic transition[2]. Consequently, the environment may be the most confusing at the very time that it is critical for humanity to understand it.
 
The way in which humanity represents the world can also serve to misrepresent the true trend. A good example is the use of spot prices for commodities, which reflect the current balance of demand and supply, not long-term issues of depletion. The spot price of a given commodity may diverge from considerations of long-term depletion for many years or decades, and may not reflect them until close to the point of depletion. This is the mistake made by Paul Ehrlich in his famous bet with an economist on a set of commodity prices[3]. Counter-intuitively, supply even may keep growing right up to the point of depletion. A good case is that of the North Atlantic Cod Fisheries, where fishing quotas kept increasing until near the point of collapse[4].
 
When multiple complex systems are combined together, for example human civilization and the Earth’s natural systems, the underlying trend and causal factors can be even more difficult to ascertain. The inability to deal with such complexity may lead to the misattribution of a given phenomena to a singular cause. For example, blaming the 2008 crisis on increasing energy prices when many other factors may have been at play. Since 2008, factors such as high debt levels, a growth deceleration in China, and new short-term increases in oil supply (supported by high oil prices and near-zero interest rates on government debt), have lead to great volatility in the spot price of oil. With $30 per barrel oil, many have announced that peak oil as dead. Is this just as insightful as those that were predicting an impending energy crisis when the price was at $120? The “undulating plateau”[5] theory of oil prices may provide a much more insightful view, but still misses some factors and the impact of feedback loops.
 
Human beings did not evolve in an environment where the understanding of multi-decadal trends was central to daily existence. Human civilization has developed during an environmentally stable 10,000-year period, and the maintenance of its complexity is highly dependent upon that stability. As, “the more complex a system is, the more numerous are the types of fluctuations that threaten its stability”[6], a system as complex as modern human civilization may be extremely sensitive to external fluctuations. Even small variations, such as the Little Ice Age[7] and the Medieval Warm Period[8], caused severe impacts for parts of human civilization.
 
Modern humanity operates with a civilization, and set of belief systems, optimized within an atypically stable 10,000 period, and a couple of centuries of cheap energy driven exponential growth. Both at the psychological and sociological levels, humanity is ill prepared to deal effectively with the inconsistency between its’ exponential growth and the finiteness of the planet it calls home. Its cognitive incapacity with the very concept of the exponential only compounds the issue[9].
 
My own belief is that humanity has entered the period of transition and that the level of volatility will only continue to increase over the next few decades. The biggest danger is that the levels of uncertainty generated will drive people into either inertia, the search for the “strong man” that promises to maintain the unsustainable, or the blaming of others for their plight. Valuable time and resources will be squandered instead of used to help create a more resilient and sustainable society. Human belief systems can spend a long time resisting the impacts of reality, and then suddenly change when a tipping point is reached. We must hope that such a tipping point does not require truly catastrophic events.
 


[1] Marten Scheffer (2009), Critical Transitions in Nature and Society, Princeton University Press
[2] Dirk Notz (2009), The future of ice sheets and sea ice: Between reversible retreat and unstoppable loss, Proceedings of the National Academy of Sciences of the United States of America vol. 106, no. 49. Accessible at http://www.pnas.org/content/106/49/20590.full
[3] Stanford University (n/a), The Two Simon Bets, Sanford University. Accessible at http://web.stanford.edu/group/CCB/Pubs/Ecofablesdocs/thebet.htm
[4] Janet Thompson and Manmeet Ahluwalla (2012), Remembering the mighty cod fishery 20 years after moratorium, Canadian Broadcasting Company. Accessible at http://www.cbc.ca/news/canada/remembering-the-mighty-cod-fishery-20-years-after-moratorium-1.1214172
[5] Peter M. Jackson & Leta K. Smith (2013), Exploring the undulating plateau: the future of global oil supply, Philosophical Transactions of The Royal Society. Accessible at http://rsta.royalsocietypublishing.org/content/roypta/372/2006/20120491.full.pdf
[6] Ilya Prigogine (1984), Order Out Of Chaos, Bantam
[7] Brian Fagan (2000), The Little Ice Age: How Climate Made History 1300-1850, Basic Books
[8] Brian Fagan (2003), The Long Summer: How Climate Changed Civilization, Basic Books

[9] Dr. Albert Bartlett (1969), Arithmetic, Population and Energy, Albert Bartlett. Accessible at http://www.albartlett.org/presentations/arithmetic_population_energy.html 

Editorial Notes: Roger's website seems to be down at the moment, so the current link is not working.

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