Interview with a Genius:

I was pleasantly surprised Saturday morning to receive a wonderful set of papers and comments from Cesare Marchetti.  Who, you ask?  Cesare Marchetti, if your photographic memory is taking the weekend off, is the fellow I think of as the father of S-Curve theory.  I've written about his work previously - back in a December edition of Inside Report that's now available to the public at http://www.urbansurvival.com/nldec27.htm.

I presume that Marchetti ran across my site because I referenced some of his earlier work for CERN, although he is presently at the International  Institute for Applied Systems Analysis in Austria.  Marchetti was kind enough to answer a few questions we had for him:

Question 1:
 
Your work has identified the crucial role of S-curves as they relate to areas as diverse as growth of competing transportation system to productivity of people in their chosen profession.  Have you done any work in the area of financial markets, such as the Dow Jones Industrials, and if so, what does S-curve theory project for our immediate future?
 

The areas I never touched, because I presume very difficult, are the stocks and the exchange rates.  Only if a contract would nail me to the work table I could do it, but no contract came. I made some cursory search on inflation and it seems to be predictable, but I stopped there, there are too many enemies around if you can prove that.

Question 2:
 
As a part-time researcher (I work full time) I wonder what other areas you see S-curve limits applying to that an ordinary investor (as readers of my web site are mostly working people) might use to advantage?  For example, where does your work point in terms of energy source growth?  Are we really approaching the limitation of the Hubbert Curve, or is some other replacement technology early on in a competing growth curve that has escaped broad public acceptance?

As I explained in various papers there is no energy shortage from a technical point of view, but shortages can be easily created by oligopolies. In any case nuclear energy is acceptable for the public, but not for the supporters of the politically correct. I attach a paper I did for the EU on the subject
 

Question 3:
 
Much of the work on my web site deals with what appears to be an economy driven by a debt cycle that appears to be limited to a maximum of 83-84 years. A colleague, Ehor Mazurok & I have done some work that suggests interest rates are a much larger driver of economic cycle length than anything else.  Have you done any work on long term interest rates, and if so, what does their S-curve look like - and what does it portend for our future?

All indicators I studied pointed to a 55 years cycle. I did not search for longer or shorter ones. Nor did I find an interpretation in economic terms. All seems linked to social moods raising and ebbing, but what drives social moods?
 

Most recently, Marchetti's researches have been focused on applying S-curves to predicting the long term productivity of people.  With his permission, here are some of the concepts in a 108 page report he authored in June of this year that looks at Productivity Versus Age:
 

"The ups and downs in vitality and productivity during the life history of an individual have always attracted the attention of philosophers, priests, writers, sociologists, economists, entrepreneurs, and of laypeople like ourselves, the wheat churned by the mills of time. If one can sum up the results of their attention in one statement, it is that the results are mostly emotional and descriptive. In the most recent literature on the subject, there are also many attempts to better quantify the evolution of productivity with age, proposing equations that more or less fit the quantities measured empirically.

 

To tackle the problem, we start with quantities that can be measured beyond doubt and without supplementary hypotheses. The publication list of a scientist, the very carefully catalogued musical pieces produced by Mozart, or the “hits” of a top baseball player are typical examples. The basic discovery we made in the exploratory studies is that most cases can be described quantitatively by a mathematical equation called the Logistic. Actually logistic equations can be fitted to the cumulative number of things produced over a lifetime with extraordinary precision.

 

Going cumulative has the great advantage of smoothing the time fluctuation of productivity, where actual production, e.g., of publications, can be anticipated or delayed by a certain time span, introducing a longitudinal noise that makes the fitting of a time equation practically impossible. What we discovered as shown in the following is that by eliminating the fluctuations through that simple integration, we all formally appear to behave in a very homogeneous way, meaning that the sequence of our actions always follows a similar course, so preparing the ground for higher hierarchical levels of consideration and analysis.

 

A logistic equation has three parameters. The first provides the steepness, or concentration in time, of the things produced. The second gives a central point or flex, the date or age at which productivity was at a maximum. The third measures the total of the things produced during the lifetime of the individual. This number is extracted by fitting the equation over the actual data and may not be fully reached in practice, although usual levels reach above 95%, and in many cases more than 99% of the calculated saturation point.

 

The fact that productivity over a lifetime can be wrapped up in an equation, nonlinear yes, but with only three parameters that can be calculated using only a segment of the curve, has important reverberations in the area of sociology and philosophy. Man’s activity during his lifetime appears here to be locked in a steel corset, not the occasional and contextual ups and downs, but a precise account of what he can actually do during his lifetime: how much and when. Once the equation is fitted to one string of data, one can predict forward (and backward). This is perhaps a bonus for university deans or art merchants, but it is certainly humiliating for those personal egos supposed to be the central cogs of activity and creativity, if not the center of the world.

A particularly interesting case is that of criminals. Because of the reluctance of judicial systems around the world to provide personal data, even in anonymous form, we were only able to analyze in passing. However, with the handful of cases in our possession, we could reach a conclusion (to be braced with more analysis) that undermines the basic philosophy of the judicial system itself: the criminal is the bad guy who has to be punished and redeemed. A criminal in fact seems to operate like any other person, with a logistic equation covering his criminal life. Certainly his activity is considered illegal by the society in which he is embedded, but we analyzed the quantities of behavior, not its ethical meaning. The really crucial point that can emerge only from the predictive properties of our equations is that if one puts a criminal in prison, e.g., for five years, the crimes that he would have committed during this period of time are not “cancelled” but “postponed” until he is free again. Actually, our logistics seem to represent the description of an unavoidable, if subconscious, duty to be performed, let’s say at any price. The publishing of an academic’s work might be said to be another example.

 

This upsets the basic tenets of the judicial system, because the punishment, or maybe more specifically, the imprisonment, does not seem to reduce the actual number of crimes committed, but merely displaces them in time. Punishment, therefore, does not seem to protect society from criminals. Redemption of the criminal seems to be a romantic dream, not to be realized in practice. This is well known by prison operators. Furthermore, the criminal appears to act under the spur of an instinct he cannot control (like the publishing or perishing of the academic as said). Consequently, there is the ethical question of whether punishment is justified. We have alas no solution to propose except perhaps to put criminals in territories reserved exclusively for them, a solution that has been used on and off for centuries. Ostracism is a result. But our case histories point to a juvenile activity, like that of the athletes, which may lead to a rational solution.

 

A last point is to distinguish between creativity and productivity. Creativity is the potential to create innovative structures, in science, art, social systems, and anything else. Productivity is the act of creation, or more plainly of fabrication or execution. Because creative people are afflicted by the logistic that defines their loss in productivity in later years, one can ask what happens to the creativity that we in fact did not measure. We think the two move somehow independently. Productivity seems to be run by a subliminal clock, presumably inserted in the limbic that fits our logistics well. The study of Giuseppe Verdi, however, might open a new line of thought. After his main logistic was terminated, he produced quite a few works of dazzling beauty, which we presume were stimulated externally through the pressure of fans and friends. Perhaps the logistic steel corset can be punctured to free the subjacent if dormant creativity, which can then be exploited with constructive practical consequences. However, a finer analysis may reduce Verdi to the norm."

Marchetti's report then explores the relationship of creativity and productivity over time - the lifespan of an individual:

"Creative people produce a time sequence of works. Let us take Mozart as an example, reported in Section 4. The cumulative number of works by Mozart fits perfectly into a logistic, whose derivative depicting the actual production shows the usual bell-shaped curve we have seen, e.g., for J.S. Bach. The point of maximum productivity, the top of the bell, was reached when he was about 25 years old. This then declines, symmetrical to the build-up before. One can hardly attribute that to the wear and tear of age. There must be some deeper and subtler mechanisms that link creativity to production. From the age of 25, Mozart was splendidly creative—let us think of the Magic Flute—but his production declined. With Freud in mind, we assume that a creative act is triggered by a deep emotional pulse that we call “action pulse.” We chose the word action because—as we will see—the operation does not need to be creative in the strict sense, but the formal outcome is the same.

In the case of Mozart, productivity extended over the lifespan with the general shape of a full life cycle as described by a complete logistic."

From this basis he next proposes that creative works may be evenly spread over the lifetime of individuals, and breakthrough may come from the young or old:

"In fact Dean Keith Simonton, whom we consider to be one of the most dedicated and perceptive researchers in the field, shows that high-quality papers are evenly spread among several age groups. The number of publications published fluctuates according to age, but some people are very prolific and others not. There is, therefore, no strong correlation between age and creativity."

The idea of S-curves is that there are certain natural upper bounds for everything.  Whether it's the production of papers, Bach writing music, or the introduction of a new product into the marketplace.  This week, when I wasn't putting in the 55-hours for my "real job", I spent some time thinking about the Aggregate Index, and how we might use some of the notions of Marchetti's S-curves in the field of investment.

I reread my  December paper  to see if there was something more I could add, in the event you are pursuing work there.  I have a few ideas, such as developing S-curves that evolve from major market inflection points.  But this quickly led to a new way of looking at my Aggregate Index work.  I found myself wondering what it would look like if instead of simply proposing the parallel to 1929, I also logged the week-to-week change in the Aggregate Index as an Oscillator around a zero-axis so you can tinker with using it as a timing tool

Marchetti said two very astute things when he gave me permission to share a few snips of his work:  "No hurry for publishing, your site may be long lived and my info is durable!!!"  and about permission: "Sure you can, ideas must diffuse, or die." Both wonderful points.

With these concepts in mind then, here is a new view of my Aggregate Index work - the Aggregate Oscillator.  Thanks for sharing, Cesare.

Write when you get rich...

George Ure

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All contents (c) 1998-2001 by George A. Ure, MBA, except authors as linked or noted