Avoiding a Repeat of The Financial Crisis and Growing Income Inequality as Well: The Necessity of Limiting Income Differentials

In light of the fact that the financial crisis visited upon us by the bankers, with its spillover effects into the real economy bringing the economy into recession, was brought about by the inducement of the prospect of immediate gain and profit from investments, the proposition, especially by the Europeans, to tie bonuses received by investment bankers to long-term gain by their banks is not unexpected. This proposition, however, immediately begs the question of what constitutes “long-term”. From the propositions I’ve heard from the news, “long-term” apparently means anywhere from between three to fifteen years. Are these long enough time horizons?

The answer is no: Nonlinear dynamics (popularly known as chaos theory) tells us that nothing less than the indefinite future will do if we wish to instruct our present actions with their long-term consequences. This follows from the lesson taught us by nonlinear dynamics: that the whole is greater than the sum of the parts. That is to say, at the level of the whole, there are emergent qualities not exhibited by any of the constituents of the whole. Think of the combustion of hydrogen in oxygen to yield water. Clearly, the properties of water derive neither from the properties of hydrogen nor oxygen, per se. Rather, they derive from the spatial disposition of the hydrogen and oxygen molecules in the resulting water molecule. Thus, water (a liquid) is more than the mere sum of its parts, oxygen and hydrogen (gases).

As with the water molecule, so it is with time horizon: The future, if we look sufficiently far into it (which needn’t be very far at all if cumulative effects wrought by cumulative causes in the past are taken into account), is not merely the sum of short-term actions in the past. This is why we say that the future is not merely risky but uncertain: we may be surprised by not only the possibilities we had anticipated with varying degrees of probability but also by those we had not even imagined to be possible and therefore could not be attached any probabilities at all. For example, if we had not seen it repeatedly, who could have possibly predicted that hydrogen, when burned in oxygen, would yield water?

So because the whole is greater than the sum of the parts, we must reconcile ourselves to the incidence of uncertainty, over time. How then does this help us to contend with uncertain effects? The answer is to avail of a bi-level control mode first originated in the cell and termed semantic closure in theoretical biology. Semantic closure would complement macro-level control with micro-level control. The macro-level control incorporates boundary conditions or boundary constraints purchasing certainty whereas the micro-level control embraces uncertainty within the imposed boundary constraint. (This uncertainty is reflected by ex ante non-computability.) In the cell, the macro-level control, at the lowest level of hierarchy, is exerted by the genetic instructions for assembling linear sequences of amino acids. The micro-level control is exerted by the chemical bonds in the linear amino acid sequence as well as by the chemical bonds in the ambient chemical environment of the sequence: The sequence folds in literally nonlinear dynamical fashion from attractions and repulsions between the chemical bonds to form a three-dimensional structure with specific properties corresponding to what we know of as proteins.