Social Waves

A few days ago, a friend asked a rhetorical question about Rajat Gupta and the mess he finds himself in - "What made him do it?" One answer could be what Nassim Taleb describes in Fooled by Randomness. He simply lived on the wrong street. When you are one of the best and the brightest, and see others less capable earning multiples of what you did or will, you get desperate. And you go with the flow and try to get a piece of the action for yourself. Until the tide turns!

I first came across the idea of social tides turning in a book by Ravi Batra, called the "Great Depression of the 1990's". Unfortunately for Batra, the 1990's did not have a Great Depression, so his views lost popular interest. But in the book, he referred to Social Cycles defined by PR Sarkar (http://en.wikipedia.org/wiki/Prabhat_Ranjan_Sarkar). Sarkar had, in his turn, drawn upon the Four Ages framework that is part of Hindu mythology.

Sarkar had named the four ages to be that of the Warrior, the Intellectual, the Acquisitor and the Laborer (the last was also called the age of Lawlessness). These ages are supposed to follow each other in the same sequence, because each age in its progress creates an environment that triggers the next age.

I found an echo of this in Socionomics, formulated by Robert Prechter, who is the chief disciple and propagator of R.N. Elliott's Wave Theory for financial markets. Elliott had proposed that financial markets go through predictable waves that show fractal patterns. Fractal patterns have the property that when we magnify a small part, we find a micro version of the larger pattern. Prechter has extrapolated this fractal wave theory to social markets and mass human behaviour.

When we combine these two frameworks, we can imagine that there are fractal "ages' going through their social cycles even within years or months. Rajat Gupta is a classic example of someone who got caught in these cross-currents. A blue-chip consultant, he rose to power during an age (perhaps only a fractal age) of the Intellectual in American business (remember the time when McKinsey were called the Brahmins or high priests of management?). But sadly for him, the age changed to that of the Acquisitor, where he felt himself less powerful than young hedge fund managers half his age, who earned in one year more than he had done during his entire career. So, he, and many others such as Bernie Madoff, moved into the age of Lawlessness, where rules did not matter for a while. But, the age of Lawlessness caused the financial crisis, that triggered the age of the Warrior, and he now finds financial policemen breathing down his neck.

The only solace I can offer him is that if he does weather this storm, the next age is once again that of the Intellectual, and he could find his star rising once again. Unfortunately, the social cycle and wave theories are only good at predicting the sequence of these changes, but not their timing. So, it could be a bit of a long wait for him!