The Cost of Complexity

Welcome to this series from The Tsunami is Coming: What Keeps You Up at Night?This is a set of conversations in which experts and thought leaders name the shifts they see coming and the fractures in the status quo that haven’t yet made headlines.Since 1991, data processing has been the largest component of US business investment. Not AI. Not cloud. Not some recent revolution. For over thirty years, American firms have been voting with their capital: we need to process information. We just weren’t paying attention to what they were telling us.That’s where my conversation with Tomasz Michalski starts, and it gets darker from there.Tomasz is an economist at HEC Paris offers very interesting views on a problem mainstream economics keeps setting aside: the cognitive cost of complexity. Not information overload. Something more structural. More choices, more markets, more specialization all impose real decision costs on firms and individuals. Those costs, largely invisible in standard models, may explain more about inequality, political fracture, and geopolitical miscalculation than we give them credit for.Two other things worth sitting with from this conversation:The sector with the single largest influence on world GDP in 2019? Chinese real estate. Most European firms had no idea. Most still don’t.Trump’s tariffs on Canadian and Mexican intermediates — intended to protect American producers — ended up making European cars more competitive than locally made ones. The production system was too complex for the intervention to do what it was supposed to do. Unintended consequences, as Tomasz puts it, may be the motto of our time.What keeps Tomasz Michalski up at night: that our states, our firms, and our models are not equipped to navigate a world this interdependent — and that the gap between complexity and our ability to process it is widening, not closing.This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit jeremyghez.substack.com/subscribe