The Great Paradigm Shift

Something in the air smells of change. Understand that when I use this word I am not reciting a partisan one-liner but rather I mean the word in its purest sense: a shift in the form, nature, and essence of “something” towards “something” else unlike what it was or what it would be if left alone. Technical terminology would refer to this by the Kuhnian term “paradigm shift”, which describes the necessity for systems to undergo a sequence of incremental knowledge-accretion of new information that supports an initial hypothesis; this is done until anomalies start propping up and eventually a revolution occurs which necessitates a shift in the paradigm. Thomas Kuhn, a historian and philosopher of science, created his model to describe the life-cycles of scientific paradigms. Just as Newton shifted the paradigm set by his predecessors, so did Einstein’s theories revolutionize the paradigm before him—so on and so forth. Within every field of science, within the context of every paradigm there emerges a cycle, regardless of its nature for such is the essence of the discipline.

Let me walk you through the process: a hypothesis is generated that supposes a certain paradigm exists. Experimentation is procedurally performed on a small, controlled, yet incremental manner, all of which adds to the knowledge base of the paradigm in question—the model is validated by data with results that confirm the underlying hypothesis of the framework, what is referred to as “normal science”. With time however, anomalies start emerging, rivaling theories become more widespread due to a loss of confidence in the original model, and as a result the paradigm weakens. Consequentially, a revolution eventually needs to take place due to an incompatibility of mindsets and a polarization of opinions, all of which culminates in a shift in the paradigm. Within this new point of view, inconsistencies from the prior model are removed, and a reshuffling of the language and the terminology is performed in order for the new framework to operate in tandem with the new reality. Once the errors and anomalies are sorted however, the new paradigm starts anew with the accumulation of “normal science”, yet at a higher level than the one previously established by the old paradigm.

Kuhn was in essence describing a model that would not only apply to the hard sciences, but could also be conceptualized and applied to the arts, the humanities, the social sciences, and every other discipline which human beings set their hearts and minds to. Kuhn’s “formula” is merely a way to describe a tale as old as time, one where fathers must cede the world to their sons, where mothers must pass the mantle onto their daughters, where time must pass, change must happen, and eras succumb to shift. Titans yielded the way to the Olympians, and the Gods on the Mount relinquished their power to the human realm. As true as it is allegory, this model holds for the processes behind everything we see: from the birth and death of stars and the movement and behavior of cells, to the evolutions in systems of governance and the progression of economic and financial models, all are subject to constant evolution and survival lest there be stagnation and eventual extinction.

As such, I submit that we are living in one of the most exciting, unsettling, fundamental, 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 major shift thanks to the mega-experiment being undertaken at the Large Hadron Collider (LHC) in Geneva. Socio-political change is happening across the globe, from the Americas, to Europe, to the Middle East: the world is coming to terms with the globalized, interconnected, and digital nature of the 21^st century, and is only now beginning to find closure with the realities and consequences this unprecedented scenario brings.

The 2008 financial crisis loudly pronounced the number of holes we have in our international financial system. That part of our world came to the very precipice of collapse due to the outlandish nature of certain financial instruments which became popular ever since the passing of the Gramm-Leach-Bliley act. The story of the crisis itself is long-winded yet the important lesson is that no lesson was learned, and those individuals from those very firms responsible for rendering the Titan that is the world economy prostrate, are still doing exactly the same thing that was being done before. We are still dealing with the same tools of “wealth” creation, without the creation of any value that is tangible and measurable outside of a few digital readings.

In 2008 the derivatives market was calculated at having an estimated size of $600 trillion—more than 10 times the size of the combined global GDP of $55 trillion. Since then, the market has not been constrained, as logic would suggest that it must, considering the damage these exotic derivatives had on the global economy. Instead, there has been a dangerous proliferation of these products, given that the same institutions engaged in risky behavior were not punished; rather, they were rewarded with tax-payer funds in what was a blatant subsidization of moral hazard. They have not learned, and they won’t until the entire system experiences such an accumulation of anomalies and crises that a revolution of the financial paradigm becomes the only sensible way to keep the coherence of the free-market afloat.

A simple tenet of a free-market stipulates that risky behavior which results in failure is punished, and chances taken that end in success are rewarded. Since when has the playbook been rewritten to not punish failure? Have we become so engrossed with this gold-star-for-everyone mentality that we are now averse to facing reality when it comes a-knockin’? Surely the effects of not bailing out these institutions would have caused tectonic shifts across the world’s economy, but I can assure you that not only would the firms, but all of us have learned a very valuable lesson from the events. Next time around, and I can assure you that there will be a next time, we will have to think twice about what we do and what we allow our representatives to do. We can throw another patch-up job onto the mess and hope that the Band-Aid holds for a little while, or we make a genuine effort at treating the illness and shift towards the next logical paradigm, whatever that may be.

Regardless of the outcome, ideology, or belief, the figures show a clear unsustainability within the system. We are going to be faced with tough decisions, but we will also bear witness to a number of exciting developments across the board. This year will be one of great paradigm shifts, and will mark a decade of great evolution for humanity. 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 until now. Time to wake up. Time’s ticking.