Diagnosing "Seizures" in the U.S. Economy

TAU researcher says a comparison with epilepsy is an appropriate prism to view economics

Since 2008, the U.S. economy has been "seizing" uncontrollably. Now a Tel Aviv University researcher says that a comparison of the multifaceted economic downturn with the uncontrolled spasms of an epileptic is not inappropriate — and may say something about the origins of the disaster.

In a recent article published in the journal PLoS ONE, Prof. Eshel Ben-Jacob of Tel Aviv University's School of Physics and Astronomy, his doctoral student Dror Y. Kenett and economist Dr. Gitit Gur-Gershgorn examined the dynamics of the S&P 500 over the last decade, employing methods originally developed by Prof. Ben-Jacob to analyze the brain activity of epilepsy patients.

They discovered that a dramatic transition in the financial markets in 2001 would have been an accurate predictor of the meltdown that occurred in 2008 — and their methods also suggest a solution.

Dysfunction, diagnosis and treatment

Prof. Eshel Ben-Jacob
Prof. Eshel Ben-Jacob

In epilepsy, one sector of the brain takes over and tampers with the normal activity of other brain sectors. His analysis of the financial markets demonstrates the same dysfunction, Prof. Ben-Jacob says, revealing epileptic seizure-like behavior that resulted in the excessive dominance of the financial services sector, distorting healthy activity in other sectors of the economic marketplace, such as real estate investment and the activities of banks, governments and investment companies. This dominance led to "market stiffness," which proved to have fatal implications during the financial crisis.

This dominance and consequent "market stiffness" were manifested in the emergence of market "seizure" behavior — bursts of very high stock correlations that usually coincided with local minima in the S&P 500 Index.

"In epilepsy, the overdominance of the epileptic focus on the functioning of all other regions of the brain can result from excess activity of the neurons because the links between them are too strong, or from insufficient inhibition," Prof. Ben-Jacob says. Drawing an analogy to the stock market, he suggests that "surgical intervention" could sever some excess links between different sectors of the financial marketplace, along with a stronger inhibition of its excess activity — by increasing interest rates, for example.

The dangerous dominance of the financial sector might have been a direct consequence of hasty and dramatic U.S. interest rate cuts and other remedies used in 2001 to overcome the fallout from the "dot com" bubble collapse, Prof. Ben-Jacob says. He counsels that current U.S. policymakers may be trying to "avoid the major and painful surgery needed to cure the market."


For more business and management news from Tel Aviv University, click here

Keep up with the latest AFTAU news on Twitter: http://www.twitter.com/AFTAUnews

 

 

All active news articles
 

Quick links

Other recent news

  • Making Sense of Our Senses
  • Revive Your Smartphone in 30 Seconds
  • Is Stress a Perk?
  • TAU and Northwestern University Become "Sister Universities"
  • Drawing Conclusions
  • In Memoriam: Avraham Yaski, Founding Father of Israeli Architecture
  • Award-winning Producer Steve Tisch Will Chair Tel Aviv International Student Film Festival at TAU
  • Corporate Layoff Strategies Are Increasing Workplace Gender and Racial Inequality
  • The Knesset Comes Calling
  • Not Just What You Eat
  • Conquering Computer Armies
  • Restoring Order in the Brain
  • Listening to Whispers at the Water Cooler
  • TAU's Prof. Israel Finkelstein Receives Prestigious Delalande-Guérineau Prize
  • Off with Your Glasses
  • Pulitzer Prize Historian Saul Friedlander and MIT Visionary Marvin Minsky Among 2014 Dan David Prize Winners
  • TAU Scientists Honored for Cutting-Edge Proposals in Melanoma Research
  • New Study Finds the Early Universe "Warmed Up" Later than Previously Believed
  • Finding Israel's First Camels
  • A Digital Test for Toxic Genes
  •