Steve: I've espoused the same economic regulation = forest fire management myself before, but I haven't heard others use it. Do you have a reference to such a blog? Redundancy in complex systems is a good way to keep small amounts of damage from becoming catastrophic. Margin/buffer space is a good way to keep minor infractions from becoming catastrophic. Freedom of individual action (computer science terminology "optimistic concurrency") keeps a complex system from seizing up due to gridlock. The math wizards of Wall Street are employed at enormous salaries to do "tail-stuffing", wherein all minor risks (i.e., those that might reduce their bonuses) are pushed down into the probability distribution "tail", where the probability remains low, but the expected value is significantly increased. Net result: nice (more-or-less) smooth privatized profits, with state-subsidized catastrophic losses. "I be gone, you be gone, we all be gone". Unlike the pilots of airliners who (currently, at least) take the same risk of life & limb as the passengers, the wizards of Wall Street are playing video games with the economy in a manner eerily similar to Predator drone pilots. Neither wizard nor drone pilot has any "skin in the game". At 02:29 PM 2/4/2010, Steve Witham wrote:

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I think that this entire area has been subsumed by fractals, basins of attraction, etc.

Most of the folks in economics

For instance, today I read a blog post comparing regulation to wildfire management: there used to be a policy of preventing wildfires, but the result was bigger and bigger accumulations of kindling until you had a gigantic wildfire; current philosophy says let the little fires burn and limit damage at the edges. Similarly, downturns are a natural way of weeding out deadwood businesses, contracts, employment arrangements, products, etc. (again, standard micro view), and propping up the losers in small downturns probably pushes us toward large ones.

Like forests, economies have evolved fallbacks; although the world economic situation evolves much more quickly, I think there's a kind of meta-regulation going on. I.e. pricing, trade, investment, etc. are short-to-medium-term activities that produce some mixture of stability and chaos, but there's a evolving-toward-the-edge-of-chaos thing going on that effectively adjusts long-term strategies. My guesswork.