Wednesday, January 16, 2008

The Switch to "Viral Economies" (+ tidbits)

(I've got into the habit of posting economy posts like this to my other blog, but thought I'd bring this one over here for various reasons. Mainly because it brings up the psychological side of economics.)

The FT's front page is looking fairly severe today, touting heavier-than-normal phrases such as "plummet"ing, "tumble"-ing and "hammer"ing. Ill omens have been sweeping from the south-west across the front page with various aplomb over the past 12 months, but perhaps the latest battering brings with it more than just a lot of rain. Meanwhile, American consumers are "turning cautious at the very least". It really does seem to be something of a pincer movement by the forces of Balance and Correction.

What's really interesting, from a systemic point of view, is whether - or when - the fears of a housing market collapse will move from a "rational" process, to a "viral" one, in the same way that Northern Rock only really "took off" (in the wrong direction) once it hit the headlines. Or in the way that OPEC hoped to avoid killing the dollar itself.

Monitoring the FT is one thing. The people that read it have a good handle on what's happening already, so surprises are few and "damage" - panic? - is relatively limited. Information is an ally, and so the really interesting stuff only comes once other newspapers, the non-economists, start talking about what's happening, and How It Will Affect You.

Of course, that's where this may differ from the Northern Crock: How-It-Will-Affect-Me is different to How-I-Can-Affect-It. Pulling money out of a bank is a definite choice, like pulling bricks out from under your feet. But an economic squeeze is, one could say, more "deterministic". Sure, one can choose to spend, or not to spend, but it's a lot more likely that how much you spend is directly proportional to how much you're expecting to receive in future. In other words, the current situation is less about losing your cash (as per the Rock), and more about rationing it.

Which, of course, is why people are starting to sell their houses now, rather than later, and why they're not buying quite so much crap. Scarcity begets scarcity. On the plus side, that pound in your pocket should be worth more...

So it hasn't escaped my attention that Richard has been bookmarking panic a lot recently. Sensible forethought. Relying on information - reading the FT - is one thing. But a purely "rational" approach, based on economics, tells you nothing about what happens when economics and hysteria combine: Facebook Banking? About when news spreads like a virus feeding on a monoculture of fear and risk-aversion.

The question is "when", not "whether". And How-Will-It-Affect-YOU?

Meanwhile, some linky tidbits...

Brian Haw violently assaulted then arrested along with other peace protestors. Sousveillance disrupted, although I haven't seen the film put together about it yet - scroll down for links, and for updates to the situation. (See also BBC Coverage.)

"Server in the Sky" programme to share biometrics internationally, in case you missed it.


Richard Veryard said...

Re Panic. As you observed, I noted several separate items on panic on the same day (and a couple more today). I thought I might compose a blogpost, but you pipped me. If you have time to write more on panic before I get around to it, please feel free.

Economics (the dismal science) - not just viral but pan-demic, pan-demonic, panglossian pessimism, rip-rig-and-panic.

Scribe said...

Too many thoughts and too much work will probably prevent me from posting on panic in the near future. But I can imagine it as a stable/non-stable chaotic system: at some point, the tipping point, things go from stable ignorance to unstable entropy. What I'm unsure about at the moment, and that I'd love to hear further thoughts on, are what the inputs for this system is. Obviously mass-communicated rhetoric plays a part, as does education, and hence why comms networks should be looked into. But that can't be the end of the story, can it?