Alas, I was so absorbed in work this past week that I missed the exciting volatility on Wall Street – and the chance to profit from foolishness, or perhaps to make a fool of myself, as the case may be.
Catching up on my reading, I found this article: Thursday’s Stock Free Fall May Prompt New Rules. In the first sentence the author, begins thusly: the kind of bungee jump stocks took Thursday …. The reference to bungee cords brought to mind a physics lab project from long ago college days. As all of you who have been there know, either because you did the experiment or you dry-labbed it on paper late the night before the report is due, there is great wisdom to be had in understanding a simple mass-spring system. I am the mass (or better, you are). The bungee cord is the spring.
But before we can drink wisdom from the cup of physics, we must redress an error. There is an important, often misunderstood word that has gone missing: friction. It is always there, except in the land of truly weird phenomena, such as superconductivity and aspects of current financial and political ideology. The system always has three parameters, three knobs to adjust: the mass m, the spring constant k, and the coefficient of friction c. Please permit me to cite the famous differential equation before we move on to the world of sports, politics, and, most importantly, finance.
m(acceleration) + k(velocity) + c(position) = applied force
Friction, the forlorn parameter c, is thought of as a BAD THING: squabbling between siblings, or with parents or bosses. Or relations between government regulators and their regulatees. Or taxes. The less friction, the better, it is said. Let’s reduce that parameter c! Let’s get rid of it entirely!! In fact, off with its head!!!
OK, let’s think about this in the context of ice skating. Ice skating is exciting because c is so small, because of the speed and ease of motion which low friction affords. As the skater releases the spring of her well-trained muscles, the steel of her skate blade rubs against the ice, melting a microscopic layer, letting her glide on this unseen ribbon with graceful velocity. It is all here, the mass-spring-friction system from college: the mass of her body, the spring of her quadriceps, the libertarian attitude of the ice, wiling to transform itself at her touch to keep friction to a bare minimum.
For just a moment, let us take our minds away from the beauty of the skater, her dance, the bare minimum, and the music to which her movement is set. Let us think instead about that lab experiment. The mass bobs up and down. On the upswing, it converts potential energy stored in the spring into kinetic energy. On the upswing, the flow of energy reverses. The regular oscillations, almost perfectly sinusoidal, gradually subside. Why? Because of unseen frictional effects, dissipating potential and kinetic energy into the random motion of molecules, that is to say, into thermal energy, into heating up the spring, however imperceptibly.
There it is again, the word friction paired with that other, even more terrible word, dissipation. What comes to mind is the wayward nephew dissipating the family fortune, or the young musician dissipating his talent by playing Bossa Nova instead of Bach, or maybe by drinking instead of studying. But the skater needs friction to control her motion, just as the cellist needs it to play Bach, (or Bossa Nova!): his bow would never draw a sound from the strings without the stickiness of the rosin – like the ice, it melts, and then again freezes. The cycle of melting and freezing recurs many times a second in the course of a single bow stroke, alternately releasing and grabbing the string. Friction is what enables a car to brake, avoiding collision, and it is what our financial system needs, like the mass-spring system in the physics lab, to dampen those wild oscillations. Not too much, just a touch, enough to stay on this side of chaos, in the “stable regime,” as the engineers say.
So let us celebrate, not denigrate that forgotten coefficient, c, the one that regulates friction. Let’s just try to get it right. It is not easy, as we know from the history and role of Federal Reserve. One of its principal responsibilities is to adjust the coefficient of friction though the interest rates it sets.
How about this, then? A small transaction tax to slow down that high velocity trading, especially during free fall. That marvelous device, the parachute works by increasing the total friction between the falling pilot and the surrounding atmosphere, enabling him to achieve a safe, soft landing. Like the pilot, the economy might benefit from a more judicious use of friction, increasing it here, decreasing it there, and doing so when needed, rather than when it is too late.
PS. To music afficionados. Don’t get me wrong about Bossa Nova. The example above was just that. I like both. And jazz. Check out my friend Paulo’s web page. He is a Brazilian cellist who plays all of the above, and also rock.