Back to the Stable Point or Transition into a New System?

“Complex dynamical systems, ranging from ecosystems to financial markets and the climate, can have tipping points at which a sudden shift to a contrasting dynamical regime may occur.”

This is a quote from Marten Scheffer’s research paper on the early-warning signals for critical transition.

Even though financial regulation is not that dynamic, but rather slow to react to the changes in the financial world, it still reflects (and sometimes forces) the dynamics in the financial sector. Could we then historically compare financial regulation to an unstable swinging boat, which sometimes comes to a tipping point and (with a minor disturbance like wave) can easily turn over?

In this case waves would be the financial and economic crises that seem to occur every decade and swing the boat of financial regulation.

The crisis in 1980 seemed to have pushed the boat to its tipping point, and the disturbance of Reagan and Thatcher (driven by Chicago Business School economists), has turned the regulatory system by 180 degrees.

“In the present crisis, government is not the solution to our problem, government is the problem.”

This was in Reagan’s inauguration speech in 1981.

The following system of liberal economy was quite resilient, now however, it seems to be it its tipping point where it could either go back to its stable point, or transit into a new system with a new point of stability.