Something is in the air and it smells of change. Understand that when I use this word I am not reciting a partisan one-liner, for I mean the word in its purest sense: a shift in the form of “something” towards another form different from what it is or what it would be if left alone. A term which has gained popularity is a “paradigm shift”, which describes the necessity for systems to undergo a sequence of knowledge-acretion of data which supports the original hypothesis, until anomalies propagate and a revolution eventually occurs. Thomas Kuhn, a historian and philosopher of science, created this hypothesis to describe the life-cycles of scientific paradigms.
Let me walk you through the process:
- A hypothesis is generated that supposes a paradigm exists.
- Experimentation is done which add to the knowledge base of the paradigm in question—the model is validated by data that confirms the underlying hypothesis of the model.
- With time anomalies emerge, rivalling theories become prevalent due to a loss of confidence in the original model.
- A revolution soon takes place due to an incompatibility of mindsets, culminating in a shift in paradigm.
- Inconsistencies from the prior model are removed, and a reshuffling of the terminology is performed in order for the new framework to work.
- Once the errors and anomalies are sorted, the new paradigm starts anew with a higher level of “normal science”.
Kuhn’s model applies not only to the hard sciences, but to all other disciplines. Kuhn’s “formula” is merely a way to describe a tale as old as time, that parents must cede the world to their children, that time passes, change happens, and eras shift. Titans yielded the way to the Olympians, and the Gods relinquished their power to the humans. As true as it is allegory, this premise holds for everything we see: from the birth and death of stars to the evolutions in systems of government and the progression of economic models.
I believe that we are living in one of the most exciting, unsettling, and critical of times, where we will witness paradigm shifts happen across the spectrum of human activity. The world of physics is on the verge of a shift, socio-political change is happening across the world, and only now are we coming to terms with the globalized, interconnected, and digital nature of the 21st century.
The 2008 financial crisis showed the anomalies we have in our international financial system when it came to the verge of collapse due to the outlandish nature of certain instruments which became popular since Gramm-Leach-Bliley. The history behind the crisis is long-winded but the important thing is that nothing was learned; the same individuals responsible for rendering the Titan of the world’s economy prostrate are still doing the very same thing.
The same year the crisis started the derivatives market had an estimated size of $600 trillion—more than 10 times the combined global GDP. The market has not been constrained considering the damage these products had on the global economy, and there has been a proliferation of these instruments, even though the institutions responsible for the collapse were rewarded with tax-payer funds in a subsidization of their moral hazard. No one learned anything and we won’t until the entire system experiences an overwhelming accumulation of anomalies/crises that makes a revolution of the financial paradigm the only sensible way to maintain the coherence of the free-market.
A free-market is meant to punish risky behavior that results in failure and rewards those who take chances that end in success. Since when has the playbook been rewritten to “not punish failure”? Surely the effects of not bailing out these institutions would have caused tectonic shifts across the world’s economy, but we would have learned a very valuable lesson from the events. Next time around, and there will be a next time, we will have to think hard about what we do, and what we permit our representatives to do.
Regardless of the outcome, the figures are clearly unsustainable. We will face tough decisions, but we will also witness exciting developments across the board. We can embrace the necessity for changing and adapting to the realities of the present and the near future or cling to the past and watch stagnation and decay grip our civilization by the throat. The status quo is comfortable, but not when it threatens to destroy everything we’ve worked for. Time to shift the paradigm. Time’s ticking.
Written by guest author Miguel Galaz. Miguel is a consultant with interests in development, finance, economics, and politcs. He just finished his Master’s in International Relations and is currently residing in Lisbon, Portugal.
