The Domino Clusters – how the world is collapsing

I have done a lot of work on network theory, particularly in the area of contagion. I am preparing a lot more content in this area, based on around three months of work done recently. In the meantime, rather than waiting to roll it all out at once, I thought I would share one of my key concepts impacting the world economy – the domino clusters.

Domino clusters are clusters of interconnected activity, say ‘the car industry’ or a region, where the activity is somewhat connected within the cluster. These ties, in network fashion, may be strong or weak. They may be two-way or one-way. They may be active or passive. The key, though, is that they are interconnected, and interconnected in the fashion of clusters of dominos.

Within a network, messages can propogate through a network. I will write more on this later. Suffice to say now, that news spreads, and unfortunately bad news spreads… sometimes fast.

Within the cluster, when one ‘node’ goes down, a domino effect may take place and a near-by node may also go down. In the real world, one would think about physical dominos and physical proximity. In the virtual world, which is still the real world we live in today, the physical connection may not be present but with  internet speed a message – ‘knock down’ – can transmit at light speed across the planet instantly. Moreover the nature of this transmission can mean that the spread is not to a single node, but multiple all at the same time.

Next concept then. The interconnectivity of Domino Clusters. First, if you think of an enormous room, full of domino clusters.

A room full of Domino clusters - a world record attempt

These clusters are somehow interconnected. In the case of a world record for knocking down Dominos, one deliberately creates links between clusters to make the event more exciting, to derisk sections of the overall plan not going ahead, and to make it easier to set up and plan the entire system.

From a ‘damn, the world economy is in trouble’ perspective, this is not entirely good news. The world economy looks like a room full of Domino Clusters. Between each cluster of activity lies a series of connections. Sometimes these are very weak ties, sometimes they have breaks in between. Sometimes they are one-way ties, which means that a one cluster can bring another down, but not the other way round.

Unfortunately they are still clusters of Dominos, and they are interconnected. And this means that, in the scariest way possible, they can all go down, one after another.

It can even get worse. Imagine the first cluster to go down… let’s call it ‘sub-prime housing loads’… finally manages to right itself within the system. All systems can eventually bottom out, finding a natural emergent position where is no longer keeps falling, and potentially once it becomes stable, it can change again Let us say that this first cluster manages to fix itself and start growing…

… annoyingly it still exists within the entire system, it is still a cluster of Dominos in a room full of Dominos. As this first cluster begins to right itself, it must make connections again with other clusters. It must, in this example, connect with the banking system. Connect with end customers. Connect with the house building industry. Now, even if this first cluster is back on its feet, it is still very vulnerable to another cluster knocking it over again. It might try to protect itself by not reconnecting… but often these connections are the lifeblood of the cluster itself. The subprime industry cannot exist without load debt, and without people wanting to move into houses. It needs to reconnect with the system, but in doing so it may be knocked over once again.

There is a lot more to this topic, and these are key points in this argument I will be elaborating over the coming days and weeks. The world has completely changed, in my view, for the better on a global human scale, but not from a money-in-our-pocket scale.

Personally I will start blaming the internet itself. That is a topic to come. But as a taster… anyone remember Terminator 3: Judgement Day – and how a networked computer, Skynet, brought down the world. Damn.