Butterflies, Baguettes, Banks and the Bad Economy

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ButterfliesWhen Edward Lorenz an American mathematician and meteorologist, and a pioneer of chaos theory was due to give a talk in 1972 at the 139th meeting of the American Association for the Advancement of Science he failed to give the title of his talk on chaos theory, Philip Merilees concocted Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas as a title.

 

As Wikipedia states, “The phrase refers to the idea that a butterfly's wings might create tiny changes in the atmosphere that may ultimately alter the path of a tornado or delay, accelerate or even prevent the occurrence of a tornado in a certain location. The flapping wing represents a small change in the initial condition of the system, which causes a chain of events leading to large-scale alterations of events. Had the butterfly not flapped its wings, the trajectory of the system might have been vastly different. While the butterfly does not cause the tornado, the flap of its wings is an essential part of the initial conditions resulting in a tornado.”

In October 1987 violent storms hit the UK, and it was suggested that if you could get a satellite photograph of that storm, and say track it back in time across the Atlantic, in theory, this devastating storm could have been started of by a van just passing along a coastal road in Newfoundland.

This got me thinking, of that other poem that starts with, “For want of a horseshoe nail” and ends with loosing a battle. This reminded me the other day of when I was walking past a certain sandwich shop. For a moment I thought about buying a tuna salad baguettes, however I decided to save money and stick to my Bovril sandwiches.

Suppose though, that the shop was just teetering on the brink of bankruptcy and my buying a sandwich would have just been enough to save them. But I walked out, so they fold.

But there is a supplier, on the brink, and because they have lost a customer, who may owe them money, they fold. People get thrown out of work and a number of people default on mortgages in a bank that is just on the edge and can you see where this going.

Sub PrimesMy failure to buy a baguette resulted in a butterfly effect of bringing down a sandwich shop, a supplier a bank leading to more of this bad economy.

We hear about Sub Primes, whatever they are, but how much of the bad economy has been made by little people, as economic butterflies, flapping our wings and causing economic storms by the decision we make on a day to day level feeding into one fiscal feedback fire?

The moral is clear – buy that baguette, the economy may depend on it.