Rolling Wave

Economic Systems and the Bang-Bang Solution

Darwin's key lesson was that the most successful organisms are those which adapt best to changing life conditions. The research described in this article would seem to confirm Wallace's corollary that the organization with adaptive mechanisms that kick in most effectively in times of stress (feedback loops at bang-bang/extreme stress turning points) to bring the system (or organism) back quickly to its evolutionary growth line is the organism best capable of withstanding or coping with times of unusual stress and surviving for longer periods.

The implication for the current period of global economic instability could be:
a) selective intervention to bail out favoured sectors or players (viz finance, but not industrial) but not ensuring that the economic system and feedback signals continue to incent and protect growth likely will not eliminate instability, but merely shift the costs from those responsible for the stress problems to those required to support a broad government bailout (the many co-opted to fund the ineffective control operations of the few). This likely will slow system or organization evolution, prolonging the stress and instability as well as the life of the less adaptive organizations;

b) bang-bang extremist interventions or feedback loops which work effectively should be copied quickly and adopted widely, not prevented or protections erected to defend the status quo - systems and organizations with faulty or weak extreme control mechanisms should be allowed, even encouraged, to disappear or adapt towards a more optimal growth paths.

c) smart regulatory management should ensure the regulatory framework include feedback loop directions or required actions for times of extreme stress which force an immediate (bang-bang, full on control interventions) return to the growth fundamentals of the activity or organizations being regulated.

Darwin has said that a key inspiration to his understanding and development of the theory of evolution was the work of Adam Smith forty years before. It might be fitting for control mechanisms which have evolved in nature to provide guidance for ensuring current economic systems are encouraged towards effective long term growth paths.
Rolling Wave