Places to Intervene in a System (Restated for Bernanke and Geithner)

12. Throw money and resources at it: Use tax measures, print money or use subsidies to encourage behaviour change. Effectively, create more water and use it to try to re-prime the pump. This is precisely what the current bailout strategy is to ‘change’ the illiquid and toxic asset-filled financial system. It is the least effective intervention.

11. Increase the buffers in the system: Increase reserves and inventories (relative to flows) to try to stimulate flows. This is the Wal-Mart ‘warehouse’ strategy, that hopes that more stuff on the shelves will produce more stuff going out the door. If banks and consumers have more cash, will they lend/spend more, or just save more?

10. Repair the physical infrastructure: Eliminate blocks, bottlenecks and leakage in the system. If there are toxic financial securities in the system scaring everyone away from investing, why not have the taxpayer buy them, write them off and then turn the taps back on?

9. Reduce delays and lead times: When there are a bunch of taps that are turned on and off out of sync, it takes awhile to get the water flowing again. Tell the banks that a condition of them getting more money is that it be immediately loaned out, or it will be clawed back. That means it’s not supposed to be used to pay outstanding bonuses to the people who wrecked the system in the first place, even if those wreckers have a contract in writing.

8. Add or strengthen balancing (‘negative’) feedback loops: When the system is dysfunctional because it’s out of balance (like human population, human consumption, or the Ponzi scheme we call the stock market), you intervene by putting in a control valve that kicks in whenever an out-of-balance situation is detected. Nature uses diseases, pandemics, and (if those fail) stress responses (war, suicide) to cope with overpopulation, because these negative feedback loops are more humane than starvation. A lending or consumer spending ‘thermostat’ would automatically tighten or loosen money supply and interest rates when lending/spending rose too fast or slowed too much. Alas, the looneys running the financial system believed no amount of spending and lending was too much, which is what got us into this mess.

7. Remove or weaken reinforcing (‘positive’) feedback loops: Analagous to intervention #8 above, but instead of putting in a control that diverts an out-of-control system, you can simply slow down the flow rate of that system. Using the thermostat metaphor, intervention #8 is like a heating and air conditioning system that alternatively turns on the heat and A/C when it gets too cold or too hot; intervention #7 is like a thermostat in a system with no A/C — it just turns down the heat when it gets too hot. Using an automotive metaphor, if the financial gurus had a speed limiter and traction control on lending (and consumer credit), it wouldn’t need to be alternatively gunning the accelerator and slamming on the brakes to try to get the car under control.

6. Increase information and accountability: If the banks (and consumers) had a ‘meter’ that automatically flashed red when the consumer’s debt load exceeded his/her cash flow after essential expenses, then perhaps the banks wouldn’t have been reckless enough to lend to people who couldn’t afford to repay without supplementing their ‘cash flow’ with more and more borrowings against the equity in their home, and perhaps the consumers wouldn’t have been foolish enough to accept these loans. Or, as I suggested a couple of weeks ago, maybe if banks were forbidden from foreclosing on assets when their loans were reckless and predatory (make them, not the consumer, accountable for the error in judgement), maybe the banks would have been more cautious and saved us all this grief. As it is, this intervention still hasn’t been tried — if you’re like me, you’re still getting barraged with people offering even more unwanted and unneeded credit.

5. Increase incentives, deterrents and constraints: This is what Dave Snowden calls the use of ‘attractors and barriers‘ in complex systems (and our financial systems are nothing if not complex). Change enforceable laws, rules and mores and you will change people’s behaviour. Put people in jail for reckless and predatory lending and I suspect you’d see less of it. The incentives, punishments and constraints need to be preventative (i.e. barriers need to be deterrents, not after-the-fact punishments), however. If people are ignorant of the law or (as all the people who borrowed too much and never imagined losing their homes) don’t think it applies to them, it won’t have the necessary deterrent and behaviour-changing effect.

4. Encourage and enhance self-organization: Now we’re getting to the interventions that really have a sustained impact — and the ones that scare the hell out of command-and-control types. Remove the barriers to self-organization and let the collective wisdom of millions of people continuously tweak the system to serve them collectively. Microfinance lending (e.g. the Grameen Bank), and local community currencies are perfect examples of extremely resilient economic systems that are substantially self-organized. This has nothing to do with what globalists and corporatists euphemistically call the ‘free market’ (which is nothing of the sort — it is a top-down tightly-controlled oligopoly of the wealthy operating without any regulation — without any of the interventions in this list). Let the people invest in each other, locally (they know exactly the creditworthiness of their neighbours) and get the banks out of the equation entirely. Don’t expect Obama’s experts to suggest this, however; it’s far too radical.

3. Change the fundamental goal, purpose or function of the system: If any of the financial gnomes are reading this, picture them starting to sweat very nervously. What if the purpose of banks wasn’t to make profits for shareholders, but to distribute wealth and well-being equitably? What if we stripped the goal of many investors (speculative gains in real estate and investments) by changing the very nature of investments (loans and shares) from speculative devices and entertainments to vehicles to achieve social justice, equity and conservation (of resources and the environment)? If you have money you want to invest, you put it into a fund that makes the world a better place, and in return for that, if you need it you can get your investment back, perhaps with enough interest to compensate you for inflation. If you have what is clearly excess wealth, it automatically gets invested in such funds. Why should money ‘earn’ anything for the person fortunate enough to have an excess amout of it? Why should we encourage speculation?

1 & 2. Change the paradigm (way of thinking) that underlies the system, or open people up to operating without any set paradigm: Point out the fundamental flaws in the way of thinking that justifies the existing system, and proffer a different way of thinking and how a system supporting that way of thinking might work, and get people who appreciate this new way of thinking into the system to transform it from within. What if we decided we didn’t want to restart the Industrial Growth Economy at all — What if, instead, we decided that a sustainable Natural Steady-State Economy was more viable, and we should just let the old economy collapse? What kind of financial system would we want to create that would actually prohibit growth instead of encouraging it?

These methods apply equally to any system — educational, political, social, business, economic, or ecological. The systems chart at the top of this post is from an earlier article on transforming our society from the dysfunctional Industrial Growth Economy to a Natural Economy, and all twelve of these interventions could be used to make such a transformation (e.g. the black arrows represent type #6 interventions — new negative feedback loops to escape from the vicious cycle in red).

It’s frustrating to listen to the blather in the mainstream media about the current financial and economic crisis, which is all about which interventions of types #7-12 (and mostly #10-12), if any, are appropriate to use to ‘rescue’ the greedy and incompetent people and institutions that exploited the financial system for personal gain, and to get us back into the addictive and unsustainable cycle of excessive and ever-increasing debt and consumption. And as long as the rich and powerful espouse only these foolish ways of thinking and ineffectual interventions to perpetuate their realization, and as long as the media dumbly and obediently report these as the only ideas on the table, public discourse will remain uninformed, conservative and unimaginative. And the chances of real intervention bringing about real change — what Obama called for but seems unable to muster — will be next to none.