Newsweek magazine says we now have "The first disaster of the Internet". So which famous law has this followed?

Posted by Jordan on 27 October 2008 | 0 Comments

With some challenging thinking from Paul Kedrosky at Newsweek about why the Internet is to blame for the current financial tsunami (in brief: as it has created a perfect market of accessible, mostly free, information, why didn't everyone use that perfect market of accessible information to make correct decisions?), there must be a law somewhere that rationalises the market's behaviour. You know, something like the infamous Moore's Law: "The number of transistors on an integrated circuit will double every 18 months" (usually translated as the amount of information in computer memory will double every 18 months) or the well rehearsed Murphy's law: "If there are two or more ways to do something, and one of those ways can result in catastrophe, someone will do it".

Whilst these laws may not have the syntactical nor analytical prose of a Newton's 3rd law of motion "to every action there is an equal and opposite reaction", they do result in a certain amount of head nodding deja vu which is almost satisfying. So, in my search for a law that has some degree of empirical history and a twist that raises an eyebrow of recognition in real life, I present you with "The law of false alerts", posed by George Spafford in June 2004. Whilst George was mostly pondering on how security systems are compromised by systems crying "Wolf!" so often that those monitoring them become slightly bored with the red lights and as a result modify their reactions to one of apathy rather than apoplexy, it does seem to ring some bells (sic) with the current crisis. Is the financial services network a complex system? Most definitely - even with Robert Preston's rather mangled and strangely intonated protestations. Have there been alarms over the last 2 years. Yes - see Robert Peston above. Have the alarms been false? Well house prices kept going up, shares increased in value, bonuses got paid, nothing changed. Were we all guilty of looking rather shiftily at each other for the first head-shake showing rejection of the alarms to justify our non-action? Unfortunately probably so.

So hats off to George Spafford for being the first person (bar Robert Peston obviously) to clearly and succinctly describe the current crisis.

And when your alarm goes off this morning, don't switch it off and turn over. It really is time to get up.