“no inspection without justification, no form filling without justification, and no information requirements without justification, not just a light touch but a limited touch.” - Gordon Brown, CBI speech, 2005However, it has become obvious that this view was far too naive, and that economies instead tend to behave more like machines than like ecosystems. In a machine paradigm information flow is more centralised, variety is minimised for the sake of efficiency and significant components can behave in concert due to the non-local structuring of information.
So a healthy economy is a cybernetic one, where there are feedback systems built in which obey Ashby's Law. One possible such feedback mechanism would be a Tobin tax, where as trading becomes higher frequency or higher risk the amount paid in taxation increases automatically, providing a counteracting balance to aid stability of the system overall. In a cybernetic view of economics it's really the transaction between agents which is a critical point at which governance can act.
With the benefit of hindsight we can see that the above quotation from Gordon Brown resulted in the opposite of requisite variety, with runaway positive feedback being a more or less inevitable outcome, given enough time. In simple terms, if you reduce the number of regulatory measurements and actions available within the feedback loop to below a certain threshold, then instability which may result in catastrophic failure becomes likely.
1 comments:
Hi Bob,
Great minds think alike. The current financial markets have completely gotten away from their original purpose...particularly the stock market. Instead of being a means to provide companies capital to grow their business and for investors to provide that capital to promising companies thru partial ownership, it is now a system to be gamed by rapid trading with advanced algorithms and co-located facilities.
This type of trading incurs almost zero risk and happens lightning quick. Here's why I made the original comment...I posted on another board some time ago that if someone is trading in and out of stocks in very short timeframes their captial gains tax should be significantly higher. In fact, the tax rate should be inversely proportional to the time held. if you own the stock for less than 24 hours, your tax should be VERY high...something like 90% in my opinion.
These high frequency traders do nothing to help the economy. They don't build things and their trading does not supply capital to the companies in any useful way. they argue that they are proving "liquidity" to the market, but this is bogus as the markets operated quite well before this type of trading existed.
Will governments wake up and change the regulations???? not likely since they are on the wall street payroll.
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