Article by Daniel Lemire first published on his blog
On December 2007, the New York Stock Exchange adopted Linux. In late August 2008, we saw one of the worse worldwide stock market crash of the last hundred years. This crisis was not predicted by mainstream economists and experts. It took them by surprise and it took weeks or months before an explanation could emerge. Even to this day, there is much debate about what really caused the crisis and what makes the recovery so difficult.
The financial industry is out-innovating regulators, experts and common investors. For years, the financial industry hired the best hackers it could find. They have a sizable share of the most creative and smart engineers on the planet. And Linux is one of their favorite tools. It is not difficult to understand: you can literally rewrite, or help rewrite, the Linux kernel. Today, Wall Street runs on Linux and it thrives thanks to its elite programmers.
Are you sad to see the best minds working in finance? Isaac Newton concluded his career as Director of the Mint, where he greatly improved the finances of England. Back then, the British currency was badly debased. Newton brought back confidence.
Maybe we need to recruit Linus Torvalds to fix the financial industry? The Wall Street hackers would listen to him and the bankers could not ignore the man who gave his name to their operating system. I am not kidding: we desperately need very clever people in the financial industry.
Credit: I was inspired by a side remark made by Ho-Sheng Hsiao.
Actually, all the serious economists saw the crash coming a mile away, told us approximately when it was going to happen, many specifics of why and how.
What you mentioned as “mainstream economists” aren’t really economists in the sense of understanding economics or forecasting. They are actually cheerleaders for the economy to convince average folks to part with their money and spend it or send it to Wall Street.
Those following the Austrian Business Cycle Theory such as myself were sounding the warning everywhere back by 2005. http://www.lewrockwell.com/block/block168.html
1 correction.
There is ample evidence of what caused the crisis. It was reckless, greedy speculation and abuse of an under regulated financial system in America. That spread like a virus across the globe via poisonous bonds. Read “A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers” to understand how the masters of the universe nearly destroyed the global economy.
Well, if you’re going to hypothesize that hyper-innovation allowed the “financial industry” to out-maneuver its customers and watchers, I’d argue that a better person to invoke for reducing future problems is Frank Herbert. The central institution of his Jorj X. Mckie stories (e.g., The Whipping Star, The Dosadi Experiment) is the Bureau of Sabotage, dedicated to preventing any institution (especially government, but I’ll suggest the financial industry here) from becoming so efficient that they can no longer understand well-enough what they manage, allowing disasters to occur before anyone even sees them coming.
From my lay understanding of finance, the real problem is that even the experts rely on systems and models with questionable validity under extreme conditions, and that their confidence in these systems is more faith-based that rigorously-tested science (which is awfully hard to do in any social context, which economics is). Sounds ripe for red tape.