“Whoever knows he is deep, strives for clarity; whoever would like to appear deep to the crowd, strives for obscurity. For the crowd considers anything deep if only it cannot see to the bottom: the crowd is so timid and afraid of going into the water.”
Friedrich Wilhelm Nietzsche, The Gay Science (1882).
“. . . using financial complexity allegedly to deceive and then using so-called independent experts to validate the deception (lawyers, accountants, credit rating agencies, “portfolio selection agents,” etc etc ) . . .”
“Now we know the truth. The financial meltdown wasn’t a mistake – it was a con [1]“
Why are many human systems complex? If we’ve learned anything over the past few years, it’s that there are two reasons—there are two kinds of complexity.
Sometimes, complexity is required to get the job done. I think of this as “parsimonious complexity.” For instance, the Mars Rovers [2] are extremely complex robots, but every part of these magnificent robots has a specific function that furthers a clearly and publicly defined mission. [3]
There are also instances where complexity is purposely injected into a system. I think of these as instances of “gratuitous complexity.”
It’s important to keep in mind that all forms of complexity serve as entry barriers to activities, due to the limited attentional capabilities of humans [4]. Very few of us have the stamina or intellect to thoroughly understand all of the artificial systems people create; many of us don’t have the stamina to thoroughly understand even simple systems [5]. When an activity is more complex, it is more difficult to understand and more daunting to those wishing to participate. Activities that are more complex are thus accessible to fewer people. For instance, chess is more complex than checkers, in that the state space of possible moves is larger in chess than in checkers. Checkers is easy to learn and play. But many checkers players don’t graduate to chess due to the increased complexity. Some systems are so incredibly complex that only the chosen few are able to participate. [6]
[7]Gratuitous complexity is often injected into an activity for benign purposes, such as creating an art form in which only elite artists can participate. For example, large numbers of amateur musicians can play folk music (much of which requires only 3 or 4 basic chords), whereas it takes a higher level of musical skill to perform more complex forms of music such as jazz and classical music. Many folk musicians are thus excluded from performing jazz. Many people who enjoy folk music don’t understand jazz. In fact, the sounds of many types of jazz and classical music grate on many of them.
Sometimes gratuitous complexity is injected into a system for nefarious reasons, namely, to intimidate most outsiders and thus to exclude them from understanding the inner workings of the system. Quite often the things being disguised are machinations of power and fraud, and those who are being excluded include regulators and law enforcement. That seems to be the case with the modern financial services industry, and it has become similar the world over, as described by the U.K. Times: [1]
This was the context in which Goldman’s Fabulous Fab created the disputed CDOs, Sean FitzPatrick [former Chairman of the Anglo Irish Bank [8]] allegedly moved loans between banks and Lehman created its Repo 105s along with the entire “debt mule” structure revealed this weekend of inter-related companies to shuffle debt around its empire. London and New York had become the centre of an international financial system in which the purpose of banking became making money from money – and where the complexity of the “innovations” allowed extensive fraud and deception.
As these nefarious complex systems continue threaten the economy, what we desperately need is a quick test; we need to be able to tell the difference between parsimonious complexity posing and nefarious gratuitous complexity posing as parsimonious complexity. Lest I be accused of making things needlessly complex, I’ll restate. We need to be able to tell whether a system A) is complex because it is doing complex work, or B) has been concocted to be complex in order to hide wrongdoing.
I have a few tentative suggestions. Here are the hallmarks of a nefarious and gratuitous complex system:
1) Notably intelligent and highly motivated outsiders endlessly struggle to understand the logic of the system or the need for the system (e.g., credit default swaps) http://en.wikipedia.org/wiki/Credit_default_swap
2) The people benefiting from a system are most vocal about the need for it.
3) Politicians who receive the biggest cash contributions from a complex industry are especially able to see the need for the industry.
4) Where those who are especially articulate about the need to tear a complex system down won’t particularly benefit from the change they are proposing.
5) Those attempting to justify a complex system can’t look you in the eyes while they attempt to explain it.
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