This one Goes to Eleven

Here’s a great metaphor from Paul Krugman’s The Return of Depression Economics:

A microphone in an auditorium always generates a feedback loop: sounds picked up by the microphone are amplified by the loudspeakers; the output from the speakers is itself picked up by the microphone; and so on.  But as long as the room isn’t too echoey and the gain isn’t too high, this is a "damped" process and poses no problem.  Turn the dial a little too far to the right, however, and the process becomes explosive; any little sound is picked up, amplified, picked up again, and suddenly there is an earsplitting screech.  What matters in another words, is not just the qualitative fact of feedback, but its quantitative strength.

Aside from the obvious parallels – feedback, the crash as an ear-splitting screech, the way everyone is always surprised – this metaphor has something else going for it.  It doesn’t make a lot of sense to look for the X,Y,Z "causes" of the crash because when feedback is present X,Y,Z may not be a problem even though X,Y,Z + epsilon creates a disaster.


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