Hobsbawm wrote: "The world of the third millennium will therefore almost certainly continue to be one of violent politics and violent political changes."
What he left out were all the extremes that result from living in an Internet-driven, overconnected world. Of course, 1994 was a bit early to reach such a conclusion.
Central to my own viewpoint is the concept of positive feedback. I use the phrase as
engineers use it (I confess to being an engineer). The term "positive" refers
to the fact that change reinforces or adds to change, rather than the
desirability of the outcome. For example, if you had a savings account as a
child and it paid two percent interest, that interest got deposited back into your
account, fed back, and drove the exponential growth of your savings. In 36 years, your account would
double in value. But if you could find a bank that paid you five percent instead, the increased level of positive feedback would double your account balance in just 14 years.
As the Internet causes connections to multiply and strengthen, positive
feedback driving our economic, financial, political, business, and social
processes increases. And too much positive feedback drives situations to extremes.
The Internet is positive feedback's best friend. By strengthening interconnections,
it compounds the amount of feedback in systems and drives them to extreme
states. In Egypt and Tunisia, the
Internet carried messages on Facebook and Twitter that helped to magnify the
social unrest -- a desirable effect of positive feedback. The Internet played an important role in powering the explosive growth in over-the-counter derivatives, from $60 trillion in 2000, to over $600 trillion in 2007 -- an undesirable effect of positive feedback. This growth could never have taken place without the information backbone provided by the Internet. Without the Internet, how could Lehman Brothers have dealt with the 980,000 derivatives it had on its books at the time of its bankruptcy?
Everywhere you look, positive feedback abounds. Consider what I call thought contagions, which I will discuss at length in a later post. Others give different names to essentially the same phenomenon. Malcolm Gladwell used the label "tipping
point." And the great 20th-century
sociologist Robert Merton coined the term "self-fulfilling
prophesies," which came true because people believed they were true. For example, when people believed a bank
was going to fail, they mobbed the bank and withdrew so much money, otherwise sound
financial institutions collapsed. Positive feedback, which is always a factor when it comes to thought contagions, lay at the core of such events.
Both the Internet stock bubble and its subsequent crash in early 2000 were fueled by
positive feedback processes. People bought stocks on the way up because they believed they would continue to rise. Day traders spreading rumors and promoting
the stocks over the Internet created much of the buying push. When the bubble burst, one of Merton's self-fulfilling prophecies kicked in, sending prices through the floor. Stockholders believed the prices would fall and rushed to sell. The falling prices caused others to panic and sell.