Vital Systems Security

The ongoing crisis in the housing market seems to illustrate how the economy can be thought of as a vital system and how that system and its governing can be conceptualized. The article points to how the labor market and the housing market can interact in unexpected ways and prevent markets to reach equilibrium.

The rapid decline in housing prices is distorting the normal workings of the American labor market. Mobility opens up job opportunities, allowing workers to go where they are most needed. When housing is not an obstacle, more than five million men and women, nearly 4 percent of the nation’s work force, move annually from one place to another — to a new job after a layoff, or to higher-paying work, or to the next rung in a career, often the goal of a corporate transfer. Or people seek, as in Dr. Morgan’s case, an escape from harsh northern winters.

Now that mobility is increasingly restricted. Unable to sell their homes easily and move on, tens of thousands of people like Mr. Kirkland and Dr. Morgan are making the labor force less flexible just as a weakening economy puts pressure on workers to move to wherever companies are still hiring.

In 2007, the inter-state migration dipped at a rate of 27 percent compared to last year, highest decrease in the rate of inter-state migration in the last 15 years! This seems to hint at the re-conceptualization of the economy as an open systems with interacting sub-systems and non-economic domains. In this new way of thinking, the problem of government becomes how to manage these interfaces where different series interact and influence each other. In the last post and in our conversations on the management of the economy, Stephen and I have been arguing for a transformation in the conceptualization of the economy as a vital system that needs to be governed accordingly rather than simply intervened upon. In this perspective, crisis is external to the exogenous to the system, rather than endogenous as Keynesian paradigm would argue. In the Keynesian paradigm, the crisis located at the natural life cycles of capitalism; due to the need for large scale re-investment at the end of each business cycle, the balance of savings and investment gets obscured and unless intervened the economy rather than coming back to the equilibrium point fails to restore the market equilibrium. So, the solution is proactive government intervention with the goal of prolonging the business cycle. The problem is located within the very nature of capitalism. However, as we have been seeing in the housing crisis the problem has nothing to do with fixed costs of re-investment of the business cycle. It rather has to do with the mismanagement of risk, which seems to be an agent of translation between different domains. It is a way to manage an interface, i.e the housing market, and indirectly the labor market, and people’s seemingly non-economic needs of inhabitation. As we have been seeing, miscalculation of risk is posing great vulnerabilities to the economy as a vital system, and the problem of crisis manifests itself in terms of shocks disseminating from one sub-system to an other. Then I presume the problem becomes one of resilience and robustness of the interfaces connecting different domains within the economy: the ability to absorb unexpected, and yet immanent shocks. So, can we actually understand the neoliberal language of regulation, as opposed to intervention, in terms of the management of interfaces? Probably Stephen can tell us more with regard to risk.