Patrick Muellr has an interesting post about being brainwashed into believing that the outrageous is normal. It’s a good read. (Hat tip to Reddit, whence many good things.) As often happens, I wrote such a long comment to his post that I felt it worthwhile to repost here.
My comment revolves around this chart of the Dow Jones Industrial Average over the last eighty years. (For the record, I’m not disputing anything about the rest of Patrick’s post. In fact, I agree with most of what he says. This chart and my comments aren’t central to his discussion about web development.) Some of you know that I’ve worked in finance before, and most of you know I have an interest in dynamics and complex systems. It’s been an interesting year.
Here’s a snapshot of the chart in question. It’s from Yahoo! Finance, and the image links to the live chart.
Most of the chart looks like an exponential, which suggests the effect of compound growth. In a functioning capital-based system you’d expect exactly that. Capital invested produces more capital. Any time an output is also a required input, you get exponential growth. One of Patrick’s other commenters points out that it looks almost linear when plotted on a logarithmic scale… a dead giveaway of an exponential.
No real system can produce infinite growth. Instead, they always hit a constraint. That could be a physical limitation on the available inputs. It could be a limit on the throughput of the system itself. In a sense, it almost doesn’t matter what the constraint itself happens to be. Rather, you should assume that a constraint exists.
In systems with a chaotic tendency, the system doesn’t slow down at all when approaching the constraint. In fact, it may be increasing at it’s greatest rate just before the constraint clamps down hardest. In such cases, you’ll either see a catastrophic collapse or a chaotic fluctuation.
I don’t know what the true constraint was in the financial system. Plenty of other people believe they know, and I’m happy to let them believe what they like. Just from looking at the chart, though, you could make a strong case that we really hit the constraint in 1999 and the rest has been chaos since then.