DANCING ON THE EDGE WITH THE BOMB

In 1898 a mysterious explosion sank the American battleship Maine in Havana harbor. While the exact cause is still debated, the results were undeniable and decisive. Press and public clamor for retaliation led swiftly to an American declaration of war against Spain followed by an invasion of Cuba, the conquest the Philippines and Guam and the sudden leap of the United States into the position of world-wide imperialistic dominance it still occupies.

Slightly more than a decade later, in 1914, two shots fired by a Serbian terrorist in little-known Sarajevo, Bosnia set off World War I, a conflagration of earthshaking global consequences which no one expected or wanted, causing nearly 40,000,000 military and civilian deaths, the results of which continue to reverberate throughout Europe, Asia and the Middle East to the present day.

             In 1950, at a peak in Cold War tensions, political and strategic overreach by General Douglas MacArthur commanding United Nations forces fighting North Korean aggression against the South triggered an unanticipated and overwhelming Chinese response. The result was three years of additional bloody warfare in Korea, which in addition to hundreds of thousands of deaths on all sides brought the world to the brink of nuclear war.

 Hydrogen Bomb

Credit: Unshootables.com/Creative Commons

             Once again, in 1962, a dangerous miscalculation by Soviet Premier Nikita

Khrushchev in attempting to place nuclear missiles in Cuba to balance the presence of American missiles around his country, brought the world closer than ever to the edge of a nuclear war with unimaginable global consequences. How close we came to disaster, we later learned, rested less on diplomacy than on the heroic choice by a Soviet submarine Captain NOT to launch a nuclear torpedo at an American destroyer despite faulty indications that an attack was underway.

             We know now that on at least three other occasions, false positive readings on radar screens in both Soviet and American nuclear defense systems nearly led to the launching of retaliatory responses which could have brought catastrophic results for both human civilization and the global environment. In each case, only the actions of individual humans, under intense pressure, choosing to interpret the reports as electronic glitches rather than incoming missile tracks, prevented disaster. 

 Slim Pickins rides the bomb in the movie Dr. Strangelove

Credit: basementrejects.com/Creative Commons

             Exactly what chain of events might be set off by the provocative statements, military posturing, accidents, missile tests, war games or even deliberate actions by players in the current dramatic standoff between North Korean dictator, Kim Jung Ill and President Donald Trump is not yet known. What we do know, however, is that massive historical conflicts and global disasters can be triggered by rogue individuals or unanticipated events at multiple levels in complex systems, often in ways that are unimaginable and, in fact, entirely unpredictable.

             The more heated the crisis atmosphere, the more likely it is that preexisting ideological predispositions or perceptual biases rather than objective facts will determine the decision-making process. Were American destroyers really under attack in the Gulf of Tonkin the summer of 1964—as early reports reaching Washington indicated? Or, to what degree were the reports interpreted, or shaped, to bring about the desired political results?

             Likewise, how was the intelligence perceived or even “fixed” in the run-up to the 2003 U.S. invasion of Iraq, to support the incorrect preconception that Saddam Hussein was on the cusp of developing nuclear weapons? And what cascade of seemingly endless tragedy has ensued in the region because of that decision?

             Recent exposure to what have been called “Black Swans” (unpredictable or unforeseen events with extreme consequences) like the sudden collapse of the Soviet Union in 1989, 9/11, or the almost-complete global financial meltdown in 2008 should certainly give us pause; as should our growing understanding of the sensitivity of interconnected planetary systems to human activity. 

            What Chaos Theorists describe as the “Butterfly effect” might, at least metaphorically, allow us to recognize the snowballing impact that small, seemingly inconsequential changes in one part of a complex system can unleash in the system as a whole.

             What this means in the current nuclear standoff with North Korea is that there is no room for even the slightest miscalculation, error or lack of caution. Threats and over-heated rhetoric can only set the stage for a cascade of disastrous consequences, the like of which only sheer good fortune has prevented multiple times during our dangerous three-quarter century experiment of dancing on the edge with the bomb. We can no longer rely on blind luck to save us--from ourselves.

Les Adler

-----

You can also find this commentary on OpEdNews 

-----

If you enjoyed this post, please consider following or receiving email notifications from zerospinzone.blogspot.com.

Emergent misbehavior


How would you like a beer? How about a beer company along with it?

On Thursday, the 6th of May, for a few minutes, you could have bought a delicious Sam Adams plus a substantial interest in its maker, the Boston Beer Company, all for the price of a pint. Boston Beer stock, along with dozens of others on the major U.S. stock exchanges, plummeted to zero, while the Dow Jones Industrial Average nosedived 700 points in a matter of minutes.

To the great relief of most traders and to anyone whose financial well being is linked even indirectly to the stock market—and that’s pretty much all of us--the market rebounded almost as quickly. Still, the wild ride left even seasoned traders in shock.

It’s hard to overstate how much value was at risk during this ten-minute event. As just one example, Exelon, a utility worth about $30 billion at 2:49 p.m. was worth nothing three minutes later. It’s estimated that one trillion dollars of value evaporated during the “flash crash.” That’s three times what the U.S. spends on public education per year, $300 billion more the U.S. government bailout of the banking system in 2008, and about equal to the current European package to rescue Greece.

The grab-your-airsick-bag crash and rebound was an anomaly, but that’s not the same as saying that it was an error, in the sense that it was caused by some specific mistake or malfunction.

Economist and market analyst John Hussman points out that U.S. stock markets have hit similar “air pockets”-- in 1955, 1987 and 1999. Like the Thursday event, those episodes resulted in roughly ten percent losses. The big difference is that they played out over weeks rather than minutes.

Since the Thursday debacle there’s been no shortage of fingerpointing.

Early speculation centered on a so-called “fat-fingered trade” as the trigger for the selloff. Instead of offering to sell a few million shares of Procter and Gamble, rumor had it that a trader mistakenly put up a few billion shares. Lacking buyers, the stock tumbled, starting a panic that took the rest of the market down with it.

The theory got a lot of attention, but like the infamous weapons of mass destruction in Iraq, there’s no evidence for it.

The most recent theory is that as the market started to drop, a particular hedge fund placed a $7.5 million bet that it would continue to fall. Other hedge funds immediately followed its lead, pushing the market over a cliff. Do lemmings come to mind?

One suspect that most market gurus agree on is high frequency trading. Multiple firms now trade using high speed computers linked directly to the stock exchanges. These constantly analyse massive amounts of data and exploit fleeting opportunities by buying and sell huge quantities of stocks and futures in milliseconds. Experts estimate that these automated agents now make from sixty to seventy percent of all trades.

The existence of these computerized agents goes a long way towards explaining what happened, and the absence of an identifiable trigger.

If there’s one thing we’ve learned about complex systems since chaos theory pioneer Edward Lorenz popularized the idea of the “butterfly effect” in the 1960s, it’s that they are capable of amplifying the tiniest perturbation to virtually any scale. It takes just one last snowflake to unleash an avalanche.

The stock market is a classic example of a highly dynamic system driven by multiple independent but interacting agents. One state it’s capable of occupying—what system theorsists refer to as an attractor-- is when the tug of war between buyers and sellers arrives efficiently at a stock’s current value. That’s the state that economists tell us represents the stock market’s raison d’etre.

It would be great if that were the only way the system functions. Unfortunately, history shows that the stock market can also wander into at least two other states or attractors. It’s prone to huge bubbles, in which contagious enthusiasm drives the prices of most stocks well above their “true” value, and, as we’ve just seen, “air pockets”, in which contagious panic does the opposite.

That was bad enough when human traders were the ones calling the shots. Presumably they had some sense that a company valued at $30 billion one minute couldn’t really be worth zero a few minutes later. Their interaction led to dramatic booms and busts, but at least these had believable tops and bottoms and unfolded on a human time scale.

Over the years the markets have instituted various fixes to try to keep the market from stumbling into its most unattrractive attractors. After the global “Black Friday” market crash of 1987, The New York Stock Exchange, for example, put in place “circuit breakers”—trading curbs that snapped into place when the market fell too quickly that were supposed to slow panic selling and so prevent a full-scale crash.

Some market analysts are blaming the circuit breakers themselves for the Thursday meltdown. They think that when the NYSE circuit breakers clicked in, the effect was to shunt the flood of sell orders to other markets that were even less able to find buyers for them .

(Just as a star needs to maintain a continuous flux of nuclear fusion to keep from collapsing under the force of gravity, stock markets need to maintain a continuous matching of sellers and buyers. If there are no buyers, stock prices start to fall. We now know that computerized trading can drive a sagging stock to zero in minutes, and can threaten to implode the entire market).

The circuit-breaker problem has gained traction. Six major exchanges have now agreed to strengthen and coordinate their circuit breakers. New rules are currently being negotiated and should be in place within a few weeks.

Those fixes may be good ideas, but they almost certainly are nothing but temporary patches. The system remains as complex, dynamic, and unpredictable as ever. It’s still shuttling hundreds of billions of dollars form buyers to sellers at inhuman speeds every day, impelled not just by humans vacillating between greed and fear, but increasingly by computerized agents impelled by abstruse algorithms. There’s no “beta testing” for these patches, which leaves all of us as guinea pigs in a very high-risk experiment.

Regulators and investors would like to believe that the proposed fixes will result in an efficient, reasonably stable market. I think it’s more accurate to view the market as something like a manic-depressive chef on speed—brilliant at what it does but capable of cooking up a disaster at any time.

Thursday's collapse and rebound, and the current fix-it-on-the-fly patches, ought to make normal investors think hard about their nesteggs. Harry Truman's aphorism about politics seems even more appropriate for investors. "If you can't stand the heat, get out of the kitchen."

Robert Adler
For the institute

accutane lawsuit