How The Economy Is Like A Sandpile

Per Bak was a Danish theoretical physicist known for his ideas on “Self-Organized Criticality.” The principles within those thoughts are often cited by others in fields well outside physics. For an example of his concept, think about dropping sand, one grain at a time, and imagine the pile that results. As the grains fall, the pile organizes itself into a circular, slope-sided structure. The structure builds gradually, and eventually, there will be a catastrophic event where some grains slide off and collapse one part of the pile. There could be several smaller ones or one huge one.

No one knows where the slide will occur, not which grain will trigger it. People do know it is inevitable.

The eventual destruction relates to early organizing that is ideal for the pile size but becomes inefficient as the pile grows. That inefficiency is corrected by the sudden destructive event.

As more sand is added, the scar heals, and another event begins to build.

How like that image is the Silicon Valley Bank history?

Tiny incremental steps eventually accumulated to create a bank run. Just like part of the sandpile sliding off.

Similarly, how close to partial collapse are parts of the economy?

It is self-organized as a collection of decisions by bureaucrats, politicians, business people, employees, unions, and consumers. To assume that it does not contain flaws that arose because of how they addressed some past event or issue is naive.

Like the sandpile, the flaws are hidden, and no one knows when and where they will become visible. Every new law, regulation, or buying decision adds something. Every decision affects more than its immediate parts. You can analyze the system with chaos theory, but you get only probabilities, not precise answers about the future you might like.

Economy-wide diversity is not a simple problem to solve. You can protect yourself only to the extent you don’t have huge commitments in any possible avalanche zone. Knowing there are non-specific risks is a beginning. Having small losses where the random failure appears offset by gains where the solutions will thrive is what diversity is about.

Think about it and see where it goes for you.

Thanks to John Mauldin for the idea here.

You should follow his weekly newsletter found at Thoughts From The Frontline.


I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.

Be in touch at 705-927-4770 or by email at

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