Monday, August 8, 2011

Technology, Finance and the Failure of our Cultural Institutions

If an extraterrestrial was to view life on Earth in 2011, what would they consider the most serious threats to our human civilization? Nuclear weapons? Damage to the environment? Religious differences? All of these are perfectly logical answers. I have another threat to add to the list: our rapidly developing information technology. The problem is not in the technology itself, the issue is with the inability of our slow-reacting cultural institutions to control that technology. Our tech wizardry is growing at an exponential rate and creating situations that our governments and financial institutions simply cannot handle. The recent global economic crisis is a good example of where this could be headed. Technology has allowed for increasingly complicated financial transactions and trading interconnected on a global scale as never seen before. Our governments however, did not fully understand what was occurring when the speculation bubbles grew and banks were taking serious risks. It was not just a problem in the United States. Many countries have been, and still are, experiencing disturbing speculation. Just witness the ghost cities of China, where massive speculative building projects serve very small populations. That bubble is just waiting to burst. Apparently, even in a controlled economy bad things can happen.

Governments did not take action in the early 2000s to reduce risk through management and regulation. They allowed the financial entities to make increasingly poor decisions. Throw into the mix the age-old problem of human greed and you have a particularly volatile situation. Bad mortgages in Florida quickly lead to unemployment in China. This is well illustrated in the recent movie “The Inside Job” and I am over simplifying to make a point. The movie shows that complicated financial trading and lack of substantial regulation, when combined with greed and self-interest, caused a massive earthquake in the world financial system. The problem is made worse by the rapidly expanding use of technology in world markets. We are not keeping pace with our machines. We unleash them on the markets and quickly find that one programming error can cause the U.S. stock market to plummet. Computers are no longer a tool in the financial system- they have become the puppet master of sorts. Human trading is a poor money maker. The faster the computer and the better designed the program, the more money that can be made. You don’t bet on a company actually creating anything. These days you let the computer trade in split second actions that treat the market, and business stocks, like a series of rising and falling waves.

The individual governments on Earth are having huge problems in trying to control the increasingly complex financial systems. Derivatives nearly brought the world to its collective knees for one primary reason (well, aside again from greed) - very few cultural institutions had regulators that fully understood them.
So, how does an extraterrestrial view all of this, if they happen to be watching? Humans have built interconnected systems of finance that can spread trouble like wildfire across the globe in a matter of days, if not hours or minutes. Yet we have no real global ability to regulate that financial action. Sure, we have some quasi-global entities, such as the International Monetary Fund, the World Bank, and the Organization for Economic Cooperation and Development (OECD). The best these groups can hope to accomplish is better economic cooperation. Their main function seems to be helping third world nations by providing loans and advice

The G-20, or Group of 20, has made strides to set a new agenda in recent years and that is one positive outcome of the most recent global financial crisis. The group provides a regular forum for the 20 major world financial powers to discuss economic issues. It’s certainly a more international body than the exclusive and European-American dominated G-8. World leaders seem to recognize that the G-20 needs a more formal nature and hopefully one day actual rule-making ability. The real question is whether the movement towards more formality and power in the G-20 and other international groups is progressing quickly enough to serve the fragile world economy. 

The founding of the European Central Bank and the Euro currency also serve as a possible model for nations on Earth.The European Union was created to allow European countries to better compete as a bloc, rather than as individual nations, with the United States, China and other growing economies. Still, the supranational organization of the 27 member European Union is an important role model for future development and the first of its kind on Earth. It shows that nations can join together with aligned economic and political interests, working in concert, rather than working in competition. This can occur without the individual nations losing cultural significance and independence.

Our technology and interconnectedness makes us like a teenager given the keys to a Lamborghini sports car. We barely know how to drive and yet we have a technological machine that can go 180 miles an hour. The worst part is that the achievable speed of that technological machine will continue to skyrocket. Tomorrow we’ll be able to go 200 miles an hour and in a year 300 miles an hour. What are the chances that the still inexperienced teen will wreck the thing at those speeds?

Our cultural institutions are failing us. We labor under tribal arrangements, disguised these days as international politics, which go back centuries. We attempt to solve world problems with a haphazard and confusing set of alliances, counter-alliances, back-door deals and all out hostilities. It’s truly a wonder we’ve survived this long.

An informed extraterrestrial would have to give pause before saying hello. Could our fragile financial system handle such an event? Could international organizations step up to the plate and lead this fractious human civilization? Do we have the ability to be anything more than bickering tribes trying to sell each other goods and gain advantage in a confusing and raucous world market place? Take a few steps off the planet and you begin to see the challenges we face in the coming years. It’s a sobering view.

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