Time for Socionomics

Why all signs point to chaos
Jacopo Ponticelli and Hans-Joachim Voth of Universitat Pompeu Fabra in Barcelona, have studied the social impact of government budget cuts in Europe since 1919. They found that "austerity has tended to go hand in hand with politically motivated violence and social instability" and revealed a strong link between the severity of budget austerity and the level of popular discontent.
They used this data to create a chaos metric representing the sum of events including assassinations, attempted revolutions, strikes, riots and demonstrations that occur per year.
The evidence finds that the deeper the budget cuts, the more severe the chaos. And deeper budget cuts certainly lie in Europe's future -- and eventually, the United States', too. We've had only a taste of these events thus far; Europe has seen most of them.
First off, this line of argument is being pushed by those who do not want spending cuts. This study is accurate, but it's pushed to advance a political agenda, not to actually serve as an explanatory model of the world. This is purely a political argument and it is also an argument for those who want inflation. I do not even need socionomics to discredit it because plain logic will do. Is it possible that "severity of budget austerity and the level of popular discontent" are not in fact a cause and result, but two factors influenced by a third factor? For what reason would budget austerity be more severe, when it makes no sense for government to impose extra austerity? Greater crises lead to greater austerity measures to save the regime/government/system. What we are witnessing isn't greater austerity leading to greater violence, but severe austerity during periods of major crisis. The government is trying everything in its power, including extremely unpopular programs that have toppled regimes throughout history, because the alternative is the destruction of the regime.

Socionomics goes even deeper. It puts forth the hypothesis that the severity of economic contraction, government response to the problem and increased violence is all the result of changing (declining) social mood.

In the The Black Swan of Cairo, Nassim Taleb and Mark Blyth modify and extend the Black Swan argument put forth by Taleb. The black swan argument from wikipedia:
The black swan theory or theory of black swan events is a metaphor that encapsulates the concept that The event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight.
The theory was developed by Nassim Nicholas Taleb to explain:
1. The disproportionate role of high-impact, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs
The best example from the past decade is the financial models used by Wall Street, created by genius PhDs, that failed because they did not account for random and unpredictable events. They modeled the world as rational and non-random beyond expected volatility. Unprepared for actual events, their models failed completely and spectacularly, and the rest is history.

One of the reasons for increased volatility and catastrophic failure in the financial system is the efforts of policymakers to reduce volatility. Government's fight recessions, central banks bailout the financial system when there is a major failure. This leads people to take greater risk because they believe in the stability of the system and over time this leads to conditions which trigger a massive collapse so large in size that policymakers cannot stop it. In The Black Swan of Cairo, this argument is extended to politics. By repressing the will of the people, the conditions are sown for major political crises. The U.S. supported Middle East dictators because it feared the rise of communist and later Islamic states; the result was the regimes became unpopular and turned to the very ideologies suppressed by the hated regime. By accepting more randomness and less control over events, it is possible to reduce the likelihood of these extreme events, just like releasing pressure from a valve prevents it from bursting.

Socionomics says that declining social mood will occur because it is part of the natural order. Whereas Taleb is looking at randomness, socionomics is putting forth an explanation for at least a part of that randomness. There are cycles of rising and falling mood that can be seen throughout history and even predicted into the future and these are the underlying force for major political and economic upheavals. Furthermore, there is no exit from the cycle. Rulers are affected by mass social mood and they cannot escape it. Society can make progress, but new problems will emerge. For example, assume wise rulers adopt Taleb's prescription. They no longer fight recessions, they do not bailout banks that fail, they do not repress public discontent. The result will be a more volatile economy and political system, but a more also a more robust one better able to deal with rare and unpredictable events. For awhile, that is, because in the end, "Stability is unstable."

In theory, economics and business take cycles into account because there's a clear boom-bust cycle throughout history. In pre-industrial times, the cycle was tied to nature and social mood was also much more attuned to natural cycles. In modern times, the economy is less dependent on short-term cycles in nature (we do not have a long enough record to say whether this will be true when larger cycles complete, such as ice ages), while increasingly dependent on social mood. However, one need not believe in socionomics to recognize a pattern and develop systems to deal with it, although it helps to identify the cause underlying economic and political cycles.

Which regimes will fall during a decline in social mood? As with banks or other companies in business, it is the regimes that have accumulated inefficient systems that leave them unable to deal with stress. Often there is an economic component, but it can also be political. When declining social mood stresses systems, those at their weakest or least able to adjust will break and those that survive will likely learn the wrong lesson and become more likely to fail at each greater degree of declining social mood. Therefore, the only way for people to deal with the cycle (if it is at all possible) is to understand the cause.

If political leaders understood socionomics today, they would realize they face a temporary decline in social mood. It provides an opportunity to reform systems and learn from current areas of weakness, so as to build more robust systems that do not repeat the mistakes of the past. If they instead believe the crisis is caused by symptoms, they will attack the symptom and not the cause. When social mood reverses, even states that reformed poorly may benefit from improved conditions, just as tossing virgins into a volcano can appear to work when the weather improves. It is critical to recognize that the system is being stressed and the areas of weakness are fundamental problems. Economic performance will decline no matter what, the public will be angry no matter what, violence is likely to increase, etc., and this will all happen again in the future. Repeating the laundry list of bad policies guarantees history will repeat more completely.

To take a present situation, the euro has failed to date. There are two paths forward: scrap it or deal with the flaws and try to improve it. The treaty changes are starting to move in that direction, but it's being conducted so as to avoid the economic and financial problems of the present, just like the bailouts. As social mood declines, stress on the euro's flaws will increase. Economic conditions will deteriorate, there will be greater protests, rising nationalism, less of a desire to cooperate and a greater desire to turn inwards and focus on domestic problems. If the Europeans view these as causes rather than symptoms, they are much less likely to hit upon a workable solution, if any exists.

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