New Scientist on complex systems and the euro crisis


Briefing: Can ecosystems show how to fix the euro?

Complexity theory may be Greek to most governments, but it could provide insights into the eurozone crisis and help prevent future financial meltdowns.

The article in New Scientist discussed the euro crisis and ways in which Complex Systems can help us understand it.

"Complexity theory shows what went wrong. Yaneer Bar-Yam of the New England Complex Systems Institute in Cambridge, Massachusetts, says his still-unpublished studies show that investors profited by driving down the value of Greek government bonds, triggering the crisis. And, he suspects, they have now moved on to Italy. If instead of national bonds issued by sometimes weak economies, the eurozone had one common bond backed by powerhouses such as Germany, such an attack could not have happened."
"Germany rejects eurobonds. But, says Bar-Yam, complex systems such as multicellular organisms show that 'if you are going to accept common risk, you have to invest in defences that extend to the weakest member'. Either that or make sure an attack on a weak member cannot spread, a technique that ant colonies have perfected: the death of a single ant has little effect on the colony as a whole. 'Biology has solved this problem several ways,' says Bar-Yam."
"Trade-offs between efficiency and resilience may mean we need to sacrifice efficiency to make systems more stable, by pruning connectivity or paying for defence measures. 'We now have the quantitative, analytical tools to do that,' says Bar-Yam. Such models may also show when short-term costs that reduce a system's efficiency may be warranted because of the long-term benefits of increased system resilience.

 

 

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