Why Did Defunding Physics Lead to the Global Financial Crisis?

[George Jones]

Yesterday, physicist Geoff Penington tweeted "In 1993 the Superconducting Supercollider was cancelled. Estimated cost: $8 billion. An exodus of physicists left to Wall Street, bringing fancy maths and dubious risk management. 15 years later the global financial crisis cost ~$20 trillion. This is why you don't defund physics!"

 

[Office_Shredder]

I'm pretty skeptical of this 20 trillion dollar claim, but this thread is probably not the best place to litigate it.

I also lol'd when I read it :)

 

[Fred Wright]

I don't think defunding the Superconducting Supercollider was necessarily a bad thing considering that it would have consumed most of the worlds known helium resources. If you are a low temperature experimental condensed matter physicist, you would have seen the price of liquid helium sky rocket.

 

[vela]

The estimated cost of the SSC is a bit on the low side as well. The last projection of the cost to complete the project I remember was $12 billion.

Anyway, it's not fair to blame all physicists. It was those damn particle physicists!

 

[Jarvis323]

/sarcasm
It was a 20 trillion dollar financial collapse, or Earth gets swallowed by a black hole; not much choice we got on this one.

 

[fluidistic]

I don't think defunding the Superconducting Supercollider was necessarily a bad thing considering that it would have consumed most of the worlds known helium resources. If you are a low temperature experimental condensed matter physicist, you would have seen the price of liquid helium sky rocket.

But then it would have accelerated the search for alternative to helium, where we are going anyway, which would have been a good thing, maybe?

 

[Vanadium 50]

considering that it would have consumed most of the worlds known helium resources.

Source, please?

The world production is about 140M cubic meters/year, or about 25,000 tons. The LHC has an inventory of about 150 tons, and loses about 25% of it every year. Say 40/tons per year, or 0.16%.

The SSC was bigger, so it might be worse. But 600x worse?

 

[phinds]

Wall Street did not and does not need ex-physicist quants to screw up the world economy. It can and will do it very well without them so tying the economic crash to the supercollider is just silly.

 

[Ivan Seeking]

Wall Street did not and does not need ex-physicist quants to screw up the world economy. It can and will do it very well without them so tying the economic crash to the supercollider is just silly.

After the Crash: How Software Models Doomed the Markets​

Overreliance on financial software crafted by physics and math PhDs helped to precipitate the Wall Street collapse

https://www.scientificamerican.com/article/after-the-crash/

 

[Office_Shredder]

On the other hand there are articles like this that very directly claim that idea is wrong

https://www.theatlantic.com/magazine/archive/2012/06/how-we-got-the-crash-wrong/308984/

The reason for the increase, so the story goes, was an underappreciated change, in April 2004, to an obscure Securities and Exchange Commission rule, which let Wall Street off its short leash and allowed unprecedented risk-taking. If not for that, according to the popular press and many accomplished scholars, the crisis might not have happened. The acceptance of this thesis has colored not only how we think about what happened but also the new laws that were designed to prevent the next crisis. The problem is, it’s flat wrong.

 

[Ivan Seeking]

On the other hand there are articles like this that very directly claim that idea is wrong

https://www.theatlantic.com/magazine/archive/2012/06/how-we-got-the-crash-wrong/308984/

My understand has been that the new financial models were initially so successful, that financial institutions started putting more and more trust in their predictions. In addition to that, regulations were relaxed so they weren't required to have the equity to meet their obligations in activities such as credit default swaps. They also started bundling loans and burying more and more risk. In short, there were a number of significant factors.

But when their trusted models suddenly started to fail, there were no safety nets and the world came tumbling down. It was a cascade effect as the real debt of financial institutions became apparent.