Consultant Ninja: The Financial Crisis is a Wicked Problem: Management Consulting Blog

Thursday, April 2, 2009

The Financial Crisis is a Wicked Problem

"Wicked problem" is a phrase used in social planning to describe a problem that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognize. Moreover, because of complex interdependencies, the effort to solve one aspect of a wicked problem may reveal or create other problems. - Wikipedia

I have considered many smart (and stupid) people's perspective on the financial crises. After carefully considering their arguments, I identified 4 broad observations:

Observations on the Financial Crisis:
1: Nobody agrees on what the current state is.
2: Nobody agrees on why we got into the current state.
3: Nobody agrees on what the future should be.
4: Nobody agrees on how to get to the future state.
5: Nearly everybody agrees that something BIG has to happen to fix the problem.

If that observation is correct (and I think it's fairly obvious and uncontroversial), then a conclusion naturally follows.

The scale of the problem outweighs man's ability to truly understand it. In short, we're not smart enough to know how to solve it. Our best bet then is to have someone (a la benevolent dictator) to make a huge bet in one direction and hope that it works out.

This conclusion coincides with my decision to stop reading dealbreaker.com, after concluding that the people who frequent the site know little more than the rest of us.

9 comments:

Anthony Jen said...: Dealbreaker provides quite some entertainment though.; April 3, 2009 at 2:27 AM
Fred said...: Consultant Ninja,

You're fairly pessimistic with your wide sweeping statements. Just because there is disagreement does not mean things are unsolvable. And just because no one can agree on either the entire baseline or the exact way forward does not mean there is not substantial agreement.

You paint a fairly bleak picture, suggesting our republic cannot endure this crisis and have to resort to a dictatorship. We have faced much more serious trials, as a nation, and within human civilization. In time, this "crisis" will seem small in the grand scheme. I suggest we keep the broad view, don't move too fast and jump to unbalanced conclusions.; April 3, 2009 at 11:59 AM
Consultant Ninja said...: Benevolent Dictator != Dictator; April 3, 2009 at 1:58 PM
Anthony Jen said...: I am trying to offer some idea from a foreigner point of view. Kind of controversial for Americans perhaps, but should be logical.

First I would like to make a distinction between Global and American. Wall Street, aka American financial industry, is global. Many of Fortune 500 companies are not.

For the rest of the world, US is not so much a innovation center anymore. What US has is the most liquid capital market; enhanced by the fact that US Dollar is the de facto monetary standard on this planet, most economies do hold a significant portion of their wealth in US Dollar.

Part of that money went into US industry to fuel the innovation, but for the part of that money that dislike risk, it went either into T-Bills or AAA securities. Suddenly, Wall Street became not only bankers of US, but bankers of the world.

To digest all those wealth, bankers did their best to devour that money, hence the boom of all derivatives on what should be pretty boring fix income products. All those transactions have hidden the fact that the productivity of US has been steadily falling. To fundamentally counter that fact, the only way is a painful recession, a recession that reset the standard of living expectation that fits the fundamentals of economics.

Meanwhile, Wall Street is kind of detached from rest of U.S. It is bigger than rest of U.S, and that is one of reasons why it can't fail. If it fails, U.S. does not have enough competitive advantage to compete with the rest of the world and still feed its people. The current government understands that, I guess.

But that explains partially the reason why DOW has been detached from stinky unemployment number. Even in the depth of recession, more and more foreign capital flow into U.S. It's very much like saving their investment. At least for now, the bankruptcy of U.S. is not acceptable, yet.; April 3, 2009 at 6:11 PM
Joseph Greiner said...: The whole dictator concept would probably work out well if we were talking about a fascist with deep rooted competence in financial markets. The only other alternative I can think of to solve the "wicked problem" would be the rebirth of the messiah.

Also, Jen I do not believe that your statement "US is not so much a innovation center anymore" is true. I would recommend looking into the number of patents and copyrights that are issued on an annualized basis. The US is still a major innovation center both financially (harder to measure) and technologically. Unlike many developing countries, The US recognizes the critical nature of intellectual property protection in order to encourage development.

http://www.uspto.gov/go/taf/cst_all.pdf; April 6, 2009 at 9:34 AM
Anthony Jen said...: If the number of patents issued represent innovation for you, then I am not going to argue that. I have read about many patents lawsuits that are old ladies trying to sue companies like Google etc.

I do acknowledge that certain U.S. companies still have an edge in the field, but none of those edges is permanent. All those companies have a, inferior if you will, counterparts in developing economies, counterparts that are well positioned to take advantage of any sign of weakness from their U.S. counterparts.

Besides, the magnitude of such innovation advantage is not enough to feed American people. That is what I am talking about. After all, how many people can Silicon Valley employ? Not to mention, most of those innovation are derived from labor of foreigners.; April 6, 2009 at 1:45 PM
Joseph Greiner said...: Please elaborate on your statement "most of those innovation is derived from foreign labor"?; April 8, 2009 at 8:58 AM
Anthony Jen said...: The number of patents filed by Chinese/Indian engineers employed by U.S. firms; April 8, 2009 at 7:58 PM
Anonymous said...: Ninja, any tips on how to manage an incredibly large ego?; April 18, 2009 at 12:54 AM