On the one hand, the global financial crisis has reverberated around the world. Millionaires are canceling or curtailing their spending which in turn affects the spa owners, household staff, boutique owners and others who service their needs. A poll in the Washington Post stated that many individuals are anxious about their future. Foundations have suffered losses and are cutting back on the amount and number of groups they are funding. The reasons behind the collapse seem complicated and obtuse.

Yet, in reality, there are as simple as the old adage “don’t put all your eggs in one basket.” The aggregation of banks from many to few is a lesson we should have learned before–there is security in diversity. By concentrating banking with a few large firms, the risks are also concentrated. As the Youtube video of Taleb and Mandelbrot (two brilliant thinkers) describes, the very process of globalization has led to a network effect (but not in a good way ).

In this case, interdependence makes the global financial system more vulnerable because risks are shared in complicated ways and mathematically, the overall effect is much larger. While networks and the effects they can have are usually considered desirable, as the butterfly effect (articulated by Mandelbrot) shows, one seemingly unrelated act can have a rippling effect throughout a system.

Many economists are looking to Keynsian economics and massive stimulus to resuscitate the economy and avert a depression. Others are pressing for increased trade talks and a revival of the Doha Round. A recent Foreign Affairs article proposes that the IMF and WTO coordinate more, particularly around currency issues. Yet, the diagnosis of the problem may be wrong.

While Keynsian economics makes sense and may contain the current crisis; the larger issue remains: we are now living in a networked global financial system. We need to have a better understanding of the system itself and seek new, innovative thinking about ways to remake the system to encourage pro-poor growth and mitigate risks rather than pool them. Encouraging a new Doha Round and relying on past economic formulas is not the answer.

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