Are we in a critical state?
Photo: Priscilla Westra. Source: Fancycrave
A critical state is a concept from physical chemistry where something is ready for a phase change. Think of water turning to ice. When you look at a body of water that is just about to freeze, it looks the same as normal cold water. But microscopically, they’re quite different.
When water is close to freezing, it’s filled with innumerable tiny ice crystals – crystals so small that the water remains in liquid form. But this water is in a critical state. Any further cooling will cause these ice crystals to bond with one another, generating the lattice that we know (and love) as ice. The crystals that formed at this final point weren’t what caused the freezing. They were just the last straw. The real cause of the freezing was the criticality of the state.
Molecular ice lattice. Source: Wikipedia
History is full of examples of critical states. Did the assassination of Archduke Ferdinand cause World War I? Or were the conflicts of the Great Powers already in motion, waiting for a spark to set them off? Did Rosa Parks start the civil rights movement when she refused to give up her seat? Or was the movement already running in the hearts and minds of black Americans? Did the bankruptcy of Lehman Brothers trigger the financial crisis? Or was the global financial system already in a critical state?
Systems and networks are what make individuals relevant. Just as your fuel tank or brake line or cylinder head can’t claim to be your car, individual narratives are often just a small part of a much larger story. Nature’s imagination is much larger than our own.
The stock market is part of a much larger system. Stock prices reflect the residual growth of corporate profits, which themselves are only about 10% of our economy, which is itself less than a quarter of the global economy – made up of consumers, producers, companies, regulations, taxes, borrowing, and spending. And economic behavior is only a portion of all human behavior – albeit, an important one. We can only determine if we’re in a critical state by looking below the surface, at the micro-structures and internal networks of society.
John Donne had it right: no one is an island. We’re all a part of the main.
Douglas R. Tengdin, CFA
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