Cybernetic Solutions to Economic Problems

Cybernetics is the science of communication and control in animal and machine. The word was coined from the Greek word steersman (Wiener), applicable today in solving communication and control problem associated with systems. Cybernetic problems are essentially design problems which are naturally grammar oriented problems.

 Usually there is a domain knowledge associated with the cybernetic problem at hand, so solving it for instance falls in the area of expert systems under the subfield of artificial intelligence in computer science. Interestingly cybernetic problem always generate multiplier effects noticeable sharply in nature that tends to make them difficult to appreciate and solve. Hence they are considered very complex in nature. But this multiplier effect is a major symptom of knowing that organizations, scientists or engineers are truly dealing with cybernetic problems.

Let us take for instance economic management. There are various issues to be considered. In a poorly run economy one often notices the following problems: high interest rate, Low development of insurance and business, poor share prices, dilapidated infrastructure like hospital facilities, airport, schools, roads, etc. We also have challenges of poor communication structure, high unemployment rate, high exchange rate, low currency value and crime.

All these are genuine indications that the government is battling with cybernetic problem of financial nature. The truth is that the financial sector risk of a country or an economy is about 40% of aggregate risks in an economy and solving it would surprisingly ordinarily solves or wipe out majority of the remaining 60% risks in that economy. This is why sensitive government officials and planners encourage their citizens, consultants, engineers, computer scientists and others to help solve this problem and are remunerated accordingly for it. This is because once a cybernetic problem is solved there is automatic multiplier benefits springing out instantaneously. Other noticeable examples here are cellphone control, aircraft control, fuel pump control among others.

What could be the solutions? Whenever there are variables or objects in a race condition,  that is the head following tail situation, like the interrelationship between interest rate and inflation rate for instance, the solution is by targeting.

Targeting is a concept whereby one of the variable in a race condition is targeted to get the value for the other. Primarily the one targeted should be your initial variable while you can now supply the state space for your target solution.

For instance, in an economy the inflation rate is the initial variable but the problem is in identifying which interest rate value to be determined from it, is it prime lending rate, treasury bill rate, etc? The answer is treasury bill rate. That is when you target inflation rate it would return treasury bill rate which you can now match with deposit rate of banks to trigger off macroeconomic and financial indices for economic prediction. The wisdom here is that there is a functional relationship between treasury bill rate of government and deposit rate of banks captured that would in turn generate macroeconomic and financial indices based on matching of tenors. Hence inflation targeting is solution to financial control problem.

Also where a government is not overtly targeting inflation like in some countries in Africa, Middle East, Asia and South America, etc, it can always be traced back. It is just an atomic nature of treasury bill rate determination.

What about monetary policy rate? Wise government would try and get proper understanding of the above before creating corridor based variant that many becloud their understanding that their problem is not to be guessing values but factual in understanding of the complexity of their problem, that what they are trying to do is in fact trying to solve a cybernetic problem.

There are appropriate policy procedures to be considered. The root problem is that policies are to be set in line with the condition profile of their government’s budget. That is when there is deficit budget condition, treasury bills are to be sold at a discount in order to achieve low interest rate and employment in the economy and whenever there is true surplus condition, treasury bill should be sold at a premium in order to achieve high interest rate objective and unemployment in their economies.

What about high capital base for banks? Some countries like Nigeria have been experimenting on this without tangible solution to their problem. It is a failure in grasping fundamentals and deploying more scientific and technological initiatives that could have helped them.

The truth here is that there is no connection really between capital adequacy of banks and cybernetic problem solving by governments through their federal ministry of finance and central banks, because banks by their nature are highly geared organizations and to increase capital by banks is to increase their revenue and profits which should be subject to their board decisions.

So what could be the benefits? Economic damages would be retracted, growth and development would be guaranteed as treasury bill rate has both price and quantitative effects in an economy. The price effort has been dealt with above, showing that it is one of the primitives for other debt instruments’ rates determination in an economy. (E.g, debenture, preference share rate, etc).
For the other reason, quantitative effect, many economists and planners do not fully appreciate their government’s budget exposure management from treasury bill cost. It is a major tool, strategy, for redistributing funds between fixed expenditure and capital expenditure of governments and this is why treasury bill cost is major in national budgets and are not featuring in either state or local government budgets. It is for both economic control through open market operations of their central banks on behalf of their finance ministry that ought to be managing their budget exposure for need of attaining high productivity and employment in their economies and funds redistribution in their national budget.  With the above I pray there would be an awakening of national economies to the reality that the world is a global economy with sub-economies that are being operated with different rates, generating different results due to either brilliance or ignorance of economic planners and managers.

Oluwaseyi Akanni Olumuyiwa is the chief programmer/MD of Simptech Nig. Ltd., a software development Company in Abuja; The designers of Simptech Ecosoft – an inflation targeting system.


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