Law of Proportionality


Law of Proportionality

Ever since a child, I would tinker with styrofoam to make model planes. Once the design issues were kinked out, I would try to expand its size. But every time I would expand the size, something or the other would fall apart or malfunction. Back then it confused me as to why a working design would pose a challenge at expansion. Growing up, I noticed these phenomenons in many different fields where a perfectly well functioning design or an idea would not work at a different scale, just like my plane design. Let me explain.

 

Economics : We have been told that Communism does not work. Soviet Union & North Korea bear witness to this fact in history. And we are told that Capitalism works. Many countries adopting free-market policies have prospered (compared to the Communist nations). In a Free-market economy, money is the means of signal for supply and demand. Communist Economies requires Central Planning. What I find interesting is structure of a family. A family runs on communist principles. You do not charge your kids for food. Everyone works according to his ability and need. This model may even work in large families. But as the size of the model expands, communism falls apart. Whereas if Capitalism were applied to a family unit, it would destroy the social fabric and the human element from relationships.

 

Knowledge :  Pick any major event in history – Roman Empire, WW1, WW2, the Israeli-Palestinian conflict. The more you read into its details, the opinionated the information gets with conflicting point of views. Plus, when we try to granularize details, we tend to lose sight of the bigger picture. This is very common in the field of Economics. We tend to mix things between correlation and causation, or the arrow of causation. The marginal utility of more details goes from beneficial to harmful. It is important to always keep the larger picture in sight. More information does not mean more wisdom.

 

Religion : Religion creates a baseline for morality. Practicing an old religion keeps us in touch with our history, regardless we understand it or not. But implementation of religion in its strictest sense twists matters in reality. Lets take Pakistan for example. My parents tell me that Pakistan was one of the most prosperous nations in the region in the 60s & 70s. It was a very friendly and safe place. I see my parents wedding pictures and I do not see anyone anyone looking too religious. Today, taking a random sample from Pakistan would show more people practicing religion. Yet, the moral sense didnt improve proportionally. Infact, its common that neighbours no longer interact as much as they did 40 years ago. So what went wrong? I feel Law of Proportionality comes in handy explaining that we may have overextended a working principle. Or maybe its the ‘Institutionalization of religion’. Who knows! And thats the thing with Complex social systems – they arent linear. In Complex systems causation is noise. Correlations & long term trends are the real signal carrier.

 

Science : Isaac Newton and Albert Einstein explained the world of natural laws of gravitation via mathematical equations. Their discovered laws hold well with celestial bodies. But these very laws fall apart when applied to Quantum Mechanics, where there is no such thing as certainty and everything is probabilistic. The Law of Proportionality prevails even in the purest form of natural science.

I am not arguing against the size as the factor in complex system but the layers of complexity. The more complexity is layered into a system, the higher its risks of failure. And there is nothing more complex than a human conscious. We can predict the durability of machines, we can calculate the half-life of radioactive materials, energy levels and even molecular processes but we cannot calculate a rational or an irrational responses of a conscious being. This very element of consciousness restrict us from ‘calculating’ future economic conditions via fancy models. Its not just that we cannot calculate conscious irrationality but interpretation of data adds our own conscious  abstraction to our conclusion.

 

  “There are no facts. Only Interpretations” – Friedrich Nietzsche



Asif Punjwani

Trades equities, bonds and derivatives in the International Capital Markets, Dallas TX


  • Anonymous

    Asif Sb

    Welcome back. Wonderfully explained Capitalist and Communist Economic models using family behaviour.

    As for law of proportionality, Newton laws do well for our usual everyday usage. Einstien comes into play at much higher ‘speeds’ – a bit like tradional banking and highly leveraged type. Whilst Schrodinger’s cat salutes you, Einstein is relatively more in vogue again -from Prodessor Salaam to the recent Higg’s Boson – unified forces!

    You may already have come across neural networks and their use in ‘calculating’ that future economy…a few research programs have been on the go for a while.

  • Anonymous

    Asif Sb

    ‘Law of Proportionality’ – what’s happening to it in the context of Karachi Stock Exchange? Seems KSE does not follow Heisenberg Principle! Your thoughts on KSE would be illuminating.

    • Anonymous

      Central Bankers have discovered a formula to defy gravity. Problem is that the formula only works as long we believe in it. I think that not only is the king naked, but its actually a transvestite.