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If Predator-Prey Economics existed formally as a field of study, it would address human economic interactions from the perspective of Resource Competition Dynamics. In fact, Richard Goodwin used Predator-Prey dynamics in 1967 to model the growth cycle, and as shown next, its use is quite intuitive. For instance, in the case of Debt vs Capital, it is clear that the former must feed on the latter to survive. Also evident is that if interest from Debt accrues at a greater Internal Rate of Return (IRR) than that of the income accrued from Capital, the “Predator-Prey” ratio between them will produce an unstable feedback system. This is precisely the outcome that Hyman Minsky predicted in his 1985 Financial Instability Hypothesis, as has been confirmed every decade since then, by the exponential growth of the Leverage to Income ratio shown in Graph 1. Still, in a world run by true Keynesians (not Post-Keynesians!), it is only natural that neither the chart nor its dire forebodings become widely known until it is too late.
Bank for International Settlements
The math behind the variables in the chart is elemental: High vs Low Exponential IRR behavior. Yet, if we use predator-prey dynamics to understand the nature of the interdependence between them, we find they are tracing an unstable feedback system[6], better known in economics as Minsky’s Long Cycle Model[4] of Debt vs Capital, where principal + interest (blue) traces predator size, while capital + income (red) traces prey size. Coincidentally, just glancing at the chart explains why Greenspan and all subsequent G7 central bankers began their barely-disguised rate-cutting race after 1985. Unfortunately, interest rate manipulation wasn’t enough to prevent the debt to capital ratio from escalating exponentially, as unlimited predation, made possible via unlimited financial-system bailouts, keeps allowing impaired-debt to go on existing, after each systemic crisis.
In sum, the chart’s extraordinary fit to Minsky’s Long Cycle model suggests that on August 15th, 1971, the world’s Advanced Economies unleashed a destructive leverage feedback system that is now approaching its final stage. Reaching this conclusion, however, requires using a methodology we reserve for the analysis of non-human biological ecosystems. For when it comes to human economic interactions, rather than nonlinear math, we apply politically-motivated doctrines, posing as science. A reality that leads to a few more observations:
What separates science from non-science is the margin for interpretation[1]
Though Economics introduced many appealing concepts since Adam Smith’s original theories, static assumptions can only randomly describe the nonlinear nature of human interactions. Yet, two decades into the 21st-century, we keep applying grossly inadequate arithmetic recipes to manage our global resources, despite knowing, for instance, that a pair of simple ODEs developed in the 1920s traces the High vs Low Exponential IRR patterns that govern Financial vs Business cycles. Hence, instead of advancing Economics to serve billions of people, we have enabled it to become every snake-charmer's quintessential magic wand (aside from his mandatory 64,000 crayon-case of Misleading Indicators[2]).
Curiously, submitting Economics to scientific rigor could save the lives of millions…
As the real dynamics governing Economics become obvious to everyone, illusionists like those presently devastating Venezuela, Argentina or Brazil (2015 bottom 10%) would be rapidly recognized. Even G-7 central-bank intentions become instantly transparent: For instance, on the BIS chart above, notice that since the 70s, the US financial and business cycles have traced a predator-prey dynamics[3] pattern of unstable focus (a system that keeps moving away from equilibrium after any initial shock), better known in Economics as Minsky’s “Long Cycle.”[4]
The good news is human economics follows natural laws common to every living creature[5] and we already know how some of them work.
The bad news is Minsky’s “Long Cycle”[5]tracks top-down controlled[6], predator-prey dynamics: As unlimited bailouts by central banks/governments make unlimited predation possible, the Predator (Debt) to Prey (GDP) ratio escalates exponentially after each cycle oscillation. Then, based on Arditi-Ginzburg: “For very efficient predators, the only possible outcome is complete extinction of the system: the predators die out after exhausting the prey.” Fortunately, a top-down controlled cycle would lead to collapse, not a catastrophe, so as excess-debt collapses, excess asset-prices evaporate, and the new cycle starts with prey size (GDP) growing unchallenged (“bottom-up controlled”), as it does in nature.
[1] There must be a hundred better definitions unless one favors perceptual relevance
[2] Statistics require detrending, as data providers tend to pick modes (nominal, percent change, indexed, sum, average, etc.) or parameters (price, time, relevant unit) that back their assertions, yet might be statistically irrelevant or mathematically meaningless
[3] The Lotka-Volterra (1925–26) ordinary differential equations were originally employed to study predator-prey dynamics in fish populations after WWI
[4] Minsky’s “Long Cycle” is typified in the BIS chart by the US financial cycle’s pattern of greater amplitude waves (characteristic of unstable feedback systems) that forms over decades, as the proportion of Debt to GDP rises exponentially with each oscillation
[5] “Predator-prey dynamics” equations have been applied in economic theory, since at least 1967, when Richard Goodwin used Kolmogorov’s version. Their application to Minsky’s Long Cycle was first proven by Asada in the late 90s, then Keen and others
[6] See details in Arditi-Ginzburg’s 1989 (“ratio dependent”) version of Lotka-Volterra’s predator-prey dynamics
Further reading at Predator-Prey Economics -Summary Reloaded!
Predator-Prey Economics was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
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