A No-Cost Job Program for Obama

In a couple of recent blogs [Does Complexity Breed Volatility? and Perry, Obama, and Political Volatility], I postulated that citizens (and investors) tend to get overwhelmed by news of which they can no longer clearly evaluate the impacts, because the World around them has become too complex.  They tend to  give up on the complexity of the world surrounding them, and follow the herd. Everyone seems to follow and agree with a simple idea, moving together to one side of the boat, until some news or idea causes people to all move to the other side, creating political or market volatility.  Citizens – many of them one-issue voters – no longer analyze the issues, evaluate the pros and cons, bounce it against their own value system and their experience, they go with the flow…   Back at the ranch, market and political volatility create fear and uncertainty in the minds of the business community.  In my business dealing mainly with the Federal Government, things look pretty uncertain right now.

My recommendation for President Obama’s job program costs nothing, creates jobs right away, is sustainable, efficient and effective, and does not involve Government fraud, waste and abuse.   All the President has to do is to remind investors, company executives and entrepreneurs in his speech  why better economic days are most certainly ahead of us, and why investing in our future now makes the most sense:

• The U.S. population is projected to grow to 400 million by 2050,
• The rest of the World is growing fast and incomes are rising in many emerging economies,
• We are getting older and staying productive and healthy longer,
• etc, etc, etc…

Calming our economic nerves, and reminding us that brighter days lay ahead  can do this Nation a lot of good…and create jobs, rather than telling us to “go shopping” as George Bush did after 9/11.  Our World is complex, and our brains,  subjected to constant bad news and fear, could use a calming influence to show us the light and help us get back to work.

Perry, Obama, and Political Volatility

In my last post [Does Complexity Breed Volatility?], I briefly talked about how complexity makes it increasingly difficult for investors to evaluate the impacts of incoming news, especially “big” news, on their investments.  The result is that everyone sells with everyone else, or buys when everyone else buys, resulting in increased market volatility.

The same concept can be applied to politics, call it “political volatility”:  Faced with an increasingly complex political, economic and social environment – a system where the impact of everything is connected to everything else – citizens are having an increasingly difficult time evaluating what politicians mean, and what the true impact of a politician’s proposed initiative really will be.  For instance,  Perry believes, [What Does Rick Perry Believe? by Jonathan Chait] for example, that the national Social Security system, should be scrapped and that each state should be allowed to create, or not create, its own pension system. Is that a good idea?   To answer that question, each citizen theoretically ought to answer the question: Would I be better off, or would my community be better off?, or would my children be better off?   Perry says that Social Security is not sustainable,  and the U.S. Congressional Budget Office agrees, but Social Security could be reformed, and its viability depends greatly on the future economy – many ifs and many linkages to other systems and other parts of our lives!   OK, but many ifs and potential complexity in Perry’s ideas.

President Obama is facing a sea of Republicans driven to get him out of office no matter what the cost apparently.  The strategy, it seems, is to create political volatility, and move the electorate by simplifying the issues and create mass appeal.  Just as with the market, the electorate will move to one side of the boat, until someone screams for them to move to the other side.  In the meantime,  political volatility has created anxiety and fear, and has likely contributed to the economic sluggishness.

President Obama  has few weapons.  One is calm and reserve.  His tepid response is likely to be the best medicine to counter the current volatile climate, and hopefully let rational thinking  bring us to the center of the boat, if only for a little while…

See also my blog from last year:  Complexity: Is the Presidency Doomed?

Does Complexity Breed Volatility?

We have now become familiar with the VIX, the Chicago Board Options Exchange Market Volatility Index, thanks to the wild stock market volatility that has graced our television screens in the last few weeks.  Investors process incoming political and economic news, and try to assess their future implications on investments and assets.  They do so with limited information and limited knowledge.

The  Financial Times shows that increased volatility is caused by large investors correlating their bets, essentially, as Telis Demos quotes Nicholas Colas, chief market strategist at ConvergEx: “All the people on the boat are running from one side to the other over and over again”.   Buyers and sellers all agree on the direction of the market and interpret the news in similar manners all at the same time.

I submit – without much proof I admit – that this behavior is driven, in part, by the temporary inability of buyers and sellers to grasp the future implications of some news on assets, because the system is too complex – and they simply cannot isolate the impact of the news on their World.

In normal times, investors have a systematic view of their World that enables them to process news (weather, politics, war) and figure out the potential magnitude of the impact on the assets in their care (stocks, bonds, commodities, infrastructure, etc.)  Some see the news as good, some may see the news as bad, each may use a different model to predict what the future will bring.   But the system has become so complex that it has become increasingly difficult to build a functional model that can tell us what the impact will be with some certainty.  Take the debt ceiling case, for instance.  Was there a likelihood that the U.S. would be downgraded?  And what would be the significance of that? And how would that impact other countries?  And how would that impact S&P and the value of their ratings in other countries?  And ow would it affect municipalities in the U.S.? and their creditors?  And how would it affect the U.S.’ competitiveness in the long run?  And how would that affect the U.S. election?  And how would that impact the U.S. stock market in the medium term? …..too much to process….

In the end, investors will give up and follow the herd: sell when they sell and buy when they buy…until the news cools down again, and we can decompose ourselves into smaller, less complex, manageable Worlds.

Oh, by the way… the same idea applies to political candidacies… and volatility in political ideology, but that should be the topic of another blog…

Is Complexity Useful?

I was reading Michael Behe’s recent blog entitled “irremediable complexity” about complexity in nature, and I wanted to ask this simple question: is complexity useful?  That question, of course, brings a number of other questions, and so I will try to expand a bit.   Michael Behe comments on an article entitled “irremediable complexity?” by authors which includes noted biologist W. Ford Doolittle. The article asks whether nature creates complexity as part of evolution and selection perhaps, and whether some of this complexity has no value at all.  It seems to be sitting there, in the middle of organisms, for no particular purpose or reason at all, once it establishes itself through evolution.  In the World around us, the same could be asked of human endeavors.  Linkages establishes themselves between activities, and complexity arises because these links are useful: they serve a purpose, they establish human relations, data bridges, connections…, but do they maintain their usefulness as they remain?

A few years ago, bankers sought to group mortgages and create financial instruments by securitizing them to reduce risks, forever linking the real estate industry to the securities industry. These linkages also forever increased the level of complexity in the real estate industry, making it more complex to determine current and future house values, lending rates, and who can afford a loan.  We, in society, derive value from this complexity, yet, we also pay a cost for it.  Where is the balance?  It is increasingly difficult to understand if we derive value from this complexity or of we do not.

And there is another problem: One of  Michael Behe’s criticism of the Doolittle article is that the article does not contain quantitative proofs.  When everything is connected to everything else, the impacts and their causes are increasingly difficult to isolate, identify and quantify.  Thus, the value of linkages, the value of complexity, is harder to ascertain.  To paraphrase Michael Behe, what is the value of the associate director of licensing delays in the Department of Motor Vehicles (ADLD/DMV)?   To the Director, plenty, I am sure.

Trying to find out if the ADLD/DMV is useful may be, in itself, such a complex task, that it – the measurement – may not be reliably computed, anyhow.  This task may require observations that may be skewed by their very nature,  the very fact that the Associate Director is observed, and that the Director had to be asked for her permission…   What are we to do?  It is no wonder that in this sea of complexity, cries for simplistic “know-nothing” “authentic” approaches to the World seem appealing…

First student conference on Complexity Science

http://server7.web-mania.com/users/NcckukLe/

The first Student Conference on Complexity Science, showcasing the global challenges that the discipline tackles and the current work of complexity science PhD students, will take place next month (5 and 6 August 2011).

The conference, which is being organised by PhD students from the University of Southampton’s Institute for Complex Systems Simulation (ICSS), will bring together complexity science students from across the UK and particularly the UK’s three EPSRC Doctoral Training Centres at the Universities of Bristol, Southampton and Warwick.

Lord Robert May, distinguished professor, former president of the Royal Society and chief Government scientist will deliver a keynote speech on Friday 5 August in which he will present his latest work with the Bank of England’s Executive Director for Financial Stability, Andy Haldane, on how techniques pioneered to model complex biological ecosystems can be used to deal with systemic risk in financial “ecosystems” in order to avoid financial disasters such as the ones experienced globally over the last half-decade.

The second keynote speaker on Saturday 6 August is Luis Amaral, Professor of Chemical and Biological Engineering at Northwestern University,  who is a world authority and pioneer in network science.  His research aims to address some of the most pressing challenges facing human societies, including the mitigation of errors in healthcare settings, the characterisation of the conditions fostering innovation and creativity, and the growth limits imposed by sustainability.

Around 80 complexity science PhD students will present their current work during the conference, addressing research problems spanning a broad range of scientific disciplines such as social science and economics, climate and earth science, biomedical and neural systems, ecosystems, biodiversity and sustainability, physical systems and materials science, cell biology, molecular biology and biochemical systems, the web, critical infrastructure and techno-social systems, networks science, evolution, and language.

The conference main themes are:

• Core Research in Complexity Science
• Physical and Engineered Complexity
• Biological and Environmental Complexity
• Socio-economic and Socio-technological Complexity.

Professor Seth Bullock, who directs the Institute for Complex Systems Simulation (ICSS) at the University of Southampton, said: “The UK is investing significant sums in training and supporting the next generation of complexity scientists because they are able to bring a new set of tools to bear on critically important interdisciplinary research challenges, such as those surrounding issues of global sustainability, energy, climate, finance and technology. This conference is the first chance for the UK’s complexity science PhD students to come together as a community and learn from each other.”

The first annual Student Conference on Complexity Science will be held at the Stripe Theatre, Winchester University, 5- 6 August 2011.

Undersea Complexity

Some of us have been watching intently BP’s live undersea camera in amazement (best reality show on TV) , appreciating how difficult and complicated the undersea work to plug the Macondo oil leak in the Gulf of Mexico appears to be.

The sequence of failed attempts at stopping the flow of oil tells us something about the state of understanding of our World.  The first containment dome, 40 feet high and weighing 100 tons, was lowered on May 8, but it plugged up with icy gas hydrates that prevented the oil from flowing up pipes into the waiting ship. Then engineers tried a much smaller four by five foot containment dome called a “top hat”. That did not work.

On May 16, day 24 of the spill, Kent Wells (With a name like that, was he born for this job?), Sr. Vice President BP,  provided an operational and technology update where he presented the “insertion pipe” option.  In this procedure, a 4-inch pipe had been inserted 5-feet deep into the 22-inch wide riser, along with rubber baffles to direct the flow of oil to the surface.  Wells asserted that the difference in pressure between the surface and the oil exiting the riser would be sufficient to “cause a good percentage of the oil to rise”.  In his briefing on May 24, showed how much oil had been recovered from the well through the inserted 4-inch pipe.  The (cumulative flow) chart clearly shows that the daily flow is decreasing.

That same day, BP was preparing for the “definitive” option: the so-called “top kill” procedure.  The top kill procedure was designed to force pressurized heavy fluids known as ‘mud’ through the well’s blowout preventer and into the wellbore at rates of 50 barrels per minute.  The same day, BP COO Suttles acknowledged that there was a risk that the bulk of the mud might be diverted to the damaged riser, which is still connected to the BOP.   That is exactly what happened.

The failure of these attempts questions whether we possess the basic understanding of fluid dynamics to remedy the problem. The science of fluid dynamics is well established.  Leonhard Euler came up with the basic laws of fluid motion in 1759.   Navier and Stokes refined these equations in the mid-1800s.  Today, we have computer simulation programs, such as Flowmaster, that can be used to design pipe systems interactively in front of us.  Fluid dynamics, even in this instance, should be deterministic, predictable, and follow the basic rules of science and physics.

The interactions between ground pressure, the relative densities of the three fluids: water, oil and gas, and the effect of pressure at the bottom of the sea and at the top on these three fluids would appear to be a relatively uncomplicated problem, in light of everything else going on (disposal, logistics, politics and policies, impact on the environment.)

There are two possible causes to BP’s ineffectiveness: Either we, as a society, are unable to master the basic science behind this problem, or BP, as an organization, has not been able to draw this knowledge into focus, and put it to work to solve his problem.   Any thoughts?

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// // Gulf Gusher Dwarfs Previous Estimates, BP Will Inject Junk to Plug It HOUSTON, Texas, May 13, 2010 (ENS) – Scientific analysis of a new video released Wednesday by BP shows oil and gas spilling from the broken Deepwater Horizon wellhead on the the Gulf of Mexico seafloor at a much higher rate than previously estimated.The analysis by Purdue mechanical engineering professor Steve Wereley obtained by National Public Radio found that the rate of flow could range between 56,000 and 84,000 barrels a day – at least 10 times the Coast Guard’s earlier, widely quoted, estimate of 5,000 barrels a day. NPR also cited a separate analysis by Eugene Chiang, an astrophysics professor at the University of California-Berkeley, who calculated the rate of flow within a range from 20,000 barrels a day to 100,000 barrels a day. Oil and gas escaping from the wellpipe broken off when the Deepwater Horizon oil rig exploded and sank in April. May 12, 2010. (Image courtesy BP) BP officials have repeatedly said there is no way to measure the rate of flow from the broken pipe. “There’s just no way to measure it,” said Kent Wells, a BP senior vice president, in a technical briefing Monday. But calculations by Professor Ian MacDonald, a biological oceanographer at Florida State University, show an average flow rate of about 26,000 barrels (more than one million gallons) per day is spewing from the damaged well, five times more than the original estimate. MacDonald’s research suggests that as much as 13 million gallons of oil was spilled into the Gulf of Mexico between April 20, the date the Deepwater Horizon exploded and caught fire, and May 7. By comparison, the official estimate for the 1989 Exxon Valdez spill in Alaska is 11 million gallons. MacDonald used U.S. Coast Guard aerial overflight maps of the oil slick to estimate the total surface area of the oil spill, then applied standard guidelines to measure the thickness of the oil. By combining the two, he was able to provide a revised estimate showing that the oil spill is far worse than originally believed. While BP’s first effort to capture the spilling oil in a containment dome for transfer to a ship at surface was unsuccessful last weekend, Wells and BP chief executive Tony Hayward say they are confident that the techniques they are planning to employ starting at the end of this week will shut off the flow of oil. BP chief executive Tony Hayward briefs reporters, May 10, 2010 (Photo courtesy BP) Hayward said, “We now have in Houston, a global industry effort. There are companies here from around the world. There is every major science and technology organization in the United States in this building today working on this problem. The learning from this will be very extensive and it will inform what needs to happen in the future.” At the request of President Barack Obama, Interior Secretary Ken Salazar and Energy Secretary Steven Chu traveled to Houston this week to meet with Energy Department and national lab staff, industry officials and other engineers and scientists involved in finding solutions to cap the flow of oil and contain the spill. The first containment dome, 40 feet high and weighing 100 tons, was lowered on May 8, but it plugged up with icy gas hydrates that prevented the oil from flowing up pipes into the waiting ship, so now engineers will try a much smaller four by five foot containment dome called a “top hat,”

Complexity: Is the Presidency Doomed?

The President of the United States is both the executive in charge of our Government, and the symbol of our country’s power.  The president is in charge of a complex network of departments and agency designed to implement policies for the public good.  Increasingly, the President is facing complex crises. Responding to these crises means dealing with an internal labyrinth of career public servants and political appointees, as well as an external maze of opposing politicians and their expert opinions, media, industry and international concerns.  Each of these “agents“, as they are referred to in complexity parlance, is influenced by the behavior of other agents. That is what makes the system complex.

Before the President can take decisive action, he must receive advice from hundreds of reasoned but diverging opinions, some focused on the short-term, others on the long-term, each seeing the world with a different eye, and each weighing risks and uncertainty differently.  Decisions then must percolate through the system, be interpreted and followed through.

The oil spill crisis is a good example.  The public and the media demand that the President take decisive action to stop the oil from gushing from the bottom of the ocean.   The President must turn to his internal agents – the Coast Guard, the Department of the Interior, “Heck of a job” Brownies, and now HHS.  These agents have limited resources, and must comply with slow moving rules and regulations.  The President must then take into account the immediate and future impacts on the other stakeholders in the system.  Either the President tries to take action – with little or no impact on the complex situation or he chooses not to act at all (anticipatory regrets).

Ironically, the power of the Presidency is founded on the perception that the President can take decisive action and make an impact.  He/she is the most powerful person in the most powerful country on Earth… This is the shape of things to come:  If the President cannot take decisive action and react effectively to solve our most complex issues, is the concept of the Presidency doomed?

The Oil Spill and the Edge of Chaos…

Yesterday, I talked about the BP oil spill and the relationships between the parties involved from a complexity point of view.   Another interesting notion that applies to the spill is the concept of the  “edge of chaos”.  

We will all agree that the oil production and exploration field is a complex system.  This system evolves over time, as technology advances, as drilling goes deeper, as the price of oil fluctuates (based on supply and demand), and as the regulatory environment responds.   The behavior of this system can be characterized as adaptive (see Wikipedia for detailed information – although I do not agree with many of the assertions made there).  In adaptive systems, participants are referred to as “agents”  interacting with one another.  Transocean and BP are agents, and the stubborn oil field spewing under the sea is another.

Complex adaptive systems (CAS) evolve along a path, or multidimensional surface.  Where the system goes may not be predictable, because each agent is pursuing a behavior that has not, or cannot, be totally modeled because our lack of knowledge, incapacity to model or randomness.  For instance, the behavior of the oil well as it was capped could not be modeled and therefore was not anticipated.  Why is that?    Each agent seeks to “influence” system behavior through their own behavior and reaction.  BP, it is alleged, sought to maximize profit and accelerate the project by short-cutting safety.   This created the potential for instability by increasing the probability of accidents, and brought the system as a whole closer to the  “edge of chaos”.

Agents seek to push the system from areas where it is safe and predictable (but costly) to this edge of chaos where the system best performs.   Over the edge, the system is thrown into a chaotic and unpredictable state.   The signs of this chaotic boundary at the oil well were there: failed tests, forewarning incidents, which altogether should have warned BP and their partners that they we were stepping into dangerous territory.  Now we are left with a very unpredictable situation, not knowing if this top-kill procedure will work… until hopefully, soon, we can jump over this edge of chaos, and get the system back on safer grounds.

See the live oil well cam here

Oil Spill and Complexity…

Gail the actuary wrote a detail post (The Gulf Deepwater Oil Spill – Was Complexity a Factor?) where she explores the implications of complexity on the oil spill situation in the Gulf of Mexico.   She said:

When there are many employees and contractors with partial responsibility, it is all too easy for things to slip through the cracks.

Actually, one could argue that it may be more difficult for things to fall through the cracks when there is a third-party relationship involved.   The legal contract between the two companies should (and likely is) clearly specifying the scope of work and the respective responsibilities of the parties involved.   These terms of reference are the basis for the relationship, and they outline clearly what needs to be done, by whom, and who is responsible.  The contract between parties makes the system more reliable and reduces complexity by making outcomes more predictable, and reducing the level of integration in the system.

The difficulty comes when one party exerts pressure on the other, in violation of the agreement.  On one hand, (Wall Street Journal “BP Tries to Shift Blame to Transocean”, BP asserts that Transocean clearly had operational control over the rig. Yet, a rig worker, Mike Williams told “60 Minutes” that “The communication seemed to break down as to who was ultimately in charge,” and that BP ultimately imposed its point of view (to go faster) over the objections of Transocean.

This is likely when the situation got more complex. The system is composed of may parts. Complexity depends on two dimensions: how variable the output of each part is, and how integrated the system is (how much each part’s outcome influences the other parts.   When BP allegedly stepped over its bound by overriding and overtaking Transocean’s responsibilities, it introduced in the system additional complexity by twisting the system and coupling decision making that should have been decoupled.

So, Gail is right, complexity is a factor in this crisis.  The division of labor is a good thing. It reduces variability in each part of the system by clearly identifying expectations and outcomes, and the relationship between parties.   Complexity jumps when stress is applied to the system (pressures to go fast, failures, inconsistent test results = actuators) that resulted in violating the expectations embedded in the contracts.  This increased complexity likely contributed to breakdowns in decision making (confusion over who is in charge)  which probably contributed to the accident.

Looking forward to your comments.

Herding sheep: it’s complicated! No, it’s complex :)

Someone (my brother) asked me the difference between “complicated” and “complex”.  I touched on that in the post “What is Complexity?”  Let’s try another way, using the example provided by Michel Cotsaftis in “Complex Systems and Self-organization Modelling“:  Dogs herding sheep.

The dog has two strategies in order to herd the sheep to its destination:

1. The dog can target each sheep individually, chasing each one of them in the direction of the destination.   The dog targets a sheep, and engages into a “bilateral” relationship with that sheep trying to get it home.  This will not work (or may take forever) because the speed and direction of each sheep will affect the sheep around it in the herd.  That’s why good herding dogs will go to Strategy #2.
2. The dog makes moves that affect the herd as a whole, understanding that each moving sheep will affect the other sheep. In so doing, the dog builds a model and projects in its head how the herd will react before it makes a move. Then it may correct or make additional moves until the herd gets home.

As you may have guessed it, the first strategy views the problem as “complicated“, while the second views the problem as “complex”.  It is the interaction between the parts (how one sheep moving affects the others) that makes the problem complex.

Take a look at this video to see what I mean: