A kindly subscriber heard me telling this tale, and suggested the following outrageous story be offered for public amusement here. What happens if something doubles every day?
Hey, that’s not impossible. After all, the population of the bacteria E. coli can double in twenty minutes. But let’s stick to business. Money business, not monkey business.
Suppose you are a loan shark. I mean a VICIOUS loan shark. You find any hungry gambler who is temporarily short of cash, and you loan him a buck for the promise that he’ll pay you back two dollars tomorrow. Or suffer the bloody consequences.
Then your friend, the bank president who likes to play poker (and the stock market) finds himself (and the bank) a little short. It’s embarrassing for him, but the bank doesn’t know it yet. So you offer the president a one-dollar loan to the bank on the same terms. It takes prez a little longer than a day to fix the books. So, after a hundred days at 100% per day compound interest, how much money does the bank owe you? It’s been only a hundred days.
Take a guess. A million? Ten million? Let’s estimate high: a hundred million?
No, the bank owes you a million trillion trillion dollars! That’s right, a million trillion trillions.
To put that in perspective, suppose you laid those bills flat on top of each other, 32 one-dollar bills to an inch of thickness. How tall would the stack be? A mile? No, something over seventy thousand million light-years. That is, a stack more than one hundred thousand times the diameter of the Milky Way galaxy.
So what’s the point? The bank closed after the third week anyway.
The point is to illustrate positive feedback.*
Positive feedback is the situation when whatever you gain enables you to gain even more, like compound interest at the bank. (Well, compound interest used to grow before the federal reserve cut the interest rates to nearly zero.)
If positive feedback is unrestricted (as was the loan shark), it will cause self-destruction of the system around it (the bank).
Any system with unlimited positive feedback will eventually self-destruct.**
That’s true whether the system is a microphone in front of a loudspeaker or melting arctic ice that causes even more melting. It’s the danger of money invested in politics to gain yet more money. Unrestricted positive feedback would be a capitalistic economy absent regulations on banking, monopoly, truth-in-advertising, and the behavior we call corruption.
When you hear that growth is good, ask “Good for what?” Beware if the waters contain unrestricted sharks.
* See Blogs 14-21, 23, 28,30, 32, 43, 54, 56, 66, 67, 95, 118.
** See Blogs 6, 14, 15, 16, 20, 21, 39, 80, 95.