“All the tragedy in the world, in the individual and the multitude, comes from a lack of harmony. Moreover, harmony is the best given by producing harmony in one's life. ”
― Hazrat Inayat Khan
Over the course of the following days I will continue a series of essays that I began with my coverage of Davos last month and then more recently and a response to Mohammed El-Erian's ‘The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse" .
Apparently little agreement exists about what a realistic financial sector looks like, never mind what approaches to developing macro-models would be most effective. When Economists themselves admit that empirical evidence is lacking and that to date, the FED's policies are not merely misguided but have been improvisational and worse, reactionary and self-serving, we ought to be concerned.
It strikes me as slightly north of absurd that there will be no global coordination between the outcomes at COP-21 and the WEF such that a leading Economist of El-Erian's reputation should inform us that no well-developed macro-models that incorporate a realistic financial sector exist. Hence my concern.
Today, it is not possible to run a business that lacks enterprise architecture at its core, never mind a global economy. A majority of Fortune 500 companies do not have one in place, nor can glean the value of the data generated because technology and the competition move too fast. Moreover, while high-speed trading is something we have since the 1970's, and yet an enterprise model of financial infrastructure yet to be created.
Enterprise architecture is a costly undertaking but one that would quickly outweigh its cost in the event of another global recession. Though it would require time and investment to adopt a new operational model, incorporate new technologies — including multi-channel aggregation, cloud computing, big data analytics, and “smart” infrastructure, the benefits will be enormous.
Enterprise Architecture meshes very well with models of the economic system. I spoke of earlier, in many ways, my model is an EA itself, though focused on macroeconomic dynamics and not organizational or structural features. An "EA" approach to the global markets would analyze the structure of and both organic and inorganic relationships among sub-systems in a vast architecture namely- the global economy. Our findings would have a direct and measurable influence on the rate of potential change and overall stability or instability of those systems.
First, do we trust that enterprise architecture can scale and examine the global financial problem? If so, what examples can we think of that indicate EA models have the capability of analyzing the entire financial eco-system?
- What are the types of relationships among the many financial sub-systems would we differentiate?
- What are most important?
- Which examples could lead us to create a pilot model, in a local Central Bank, like that of San Francisco?
Our model would eventually apply to the entire financial system, and our inquiry would aggregate related data specific to the subset of systems that comprise the Fed and Central Banks. Standard methods will identify all of the relevant policies and systems for the sake of understanding the architecture of the enterprise. The rationale for creating an EA solution and independent body is to address macro-systemic irrationality and it is inherent cyclicality.
There are three simple objectives:
- Improve the quality and reduce the organizational inefficiency of existing and independent enterprise capabilities.
- Creating new expanding capacities in a system through targeted, concrete and managed changes to the network.
- Provide investors and the general public a level of transparency that has not existed heretofore.
In 2012, I suggested that we develop a model that could capture the movement of three salient features of the market, namely entropic, asymmetrical and irrational characteristics in a visualized snapshot, and then track macro-global market changes as they unfold, and perhaps even detect anomalies before they become disasterous.
I have mentioned before that it would be necessary to identify a set of verifiable empirical standards or ways to measure and observe the global economy. Some proponents suggest a 'New Method of Estimating Potential Real GDP Growth: Implications for the Labor Market and the Debt/GDP Ratio', but do not suggest that an intermediary body is needed to produce evidence of the cause and effect of oversight or use of this model, differentiated from the existing internal measures. In tomorrow's essay, I will talk more about creating an external, "civilian" body to which the Fed and ECB would be held equally accountable.
Holistic considerations would naturally include a balance of overall global monetary cost, policy effectiveness, investor satisfaction, the efficiency, speed, security, reliability of the electronic markets themselves and well as many other system quality attributes.
I'm happy to say that these essays have begun to generate a lively debate about the financial future of our planet, so please continue to comment, share, read the next series of essays tomorrow.
Louis D. LoPraeste is a Management Consultant and Investment Advisor specializing in Solutions Architecture in Financial, Energy and Educational Projects. He has advised Sr. Executives and leaders for over a decade. Please learn more about his consulting firm at www.quodfatum.com.