In April 1986 an experiment was performed in a Soviet nuclear power station. We all know what happened next: the experiment went wrong and the most serious nuclear accident to date ensued. As tends to be the case, the unfortunate development of several independent factors played a role in the disaster occurring. It was a combination of conspiring factors.
One such factor was that outdated RBMK reactors, replete with design flaws, were used in the Chernobyl nuclear power plant. The other was that the staff performing the experiment made several stupid errors.
In a nuclear reactor essentially an atomic bomb is exploded incredibly slowly, and the energy that is released immediately in the case of a real atomic bomb is harnessed over a long period of time. Clearly it’s rather important for the explosion not to speed up. That’s why several safety devices are installed that should intervene to stop the chain reaction if it accelerates.
To simplify it greatly, two things are necessary for the chain reaction: a fissile material (such as uranium) and a moderator material. If either is lacking, then there won’t be a chain reaction, in other words no electricity is produced and an accident can’t occur. For that reason water is used as a moderator in modern reactors. If an error causes the chain reaction to accelerate, which means essentially that the nuclear bomb starts to explode, then the increase in heat production causes the water to evaporate in a second (i.e. the moderator disappears), and the chain reaction stops before the explosion can occur. That means that no disaster can occur even if the safety shutdown devices fail to work.
Graphite, however, was used as a moderator in the RBMK, so in that reactor there was no negative feedback built into the system to stop the explosion in time when the chain reaction accelerated. In other words, if the control staff switch off all the emergency shutdown devices (or they are faulty) and then mess up an experiment, then there is nothing to save us from disaster.
(Dear reactor physicists, I know that my description above and below is a massive simplification and the situation is far, far more complex, but please don’t spoil my chain of thought by splitting hairs.)
A modern reactor is constructed in such a way that it cannot explode even if chimpanzees take over the control room. I believe that the world’s monetary system lacks such a structure – there’s no automatic brake that isn’t reliant on humans. There’s no brake that doesn’t depend on somebody remembering, before the explosion, to press the emergency shutdown button in time if the monetary system has entered a critical state. What I would like to see is self-regulating automatism, independent of humans, built into the system to ward off a Chernobyl-type incident, where the people in charge of the monetary system perform an experiment clumsily and the whole system blows up.
And thousands of experiments are being performed. The big news last week, which caused no little surprise, was that, contrary to expectations, the Fed has not begun slowing down its quantitative easing program. Eighty-five billion crisp new dollars will be printed a month, at the same rate as before. It has also been reported that Janet Yellen is almost certain to be appointed new Fed chairman – she takes an even more lax line than the current chairman, Ben Bernanke.
It should be noted that the world has never witnessed such monetary easing or the like of this before. The consequences of the experiment are not clear. Recently growing numbers of experts have called attention to the associated perils. Their concern is not surprising since one reason that the credit crisis reared its head was certainly the earlier, excessively lax monetary policy. The legendary former FED chief Alan Greenspan kept the interest rate extremely low, at 1%, for a whole year in 2003 to 2004. By comparison, in December the base rate in the USA will have been almost at zero for five years (and it is predicted to stay that way until 2016). Moreover, more than 2,000 billion dollars have been printed during that time. The question is to what extent the credit crisis can be cured by means of the very thing that brought it about in the first place.
Aside from the fact that I’m now joining the camp of the worriers, in the following posts I will consider what shape an idiot-proof monetary system designed to prevent even experimenting central bankers from causing too much trouble could take. It needs to be developed so that – similarly to modern nuclear reactors – it contains a form of automatism based on the system’s operating principle that makes a correction if the monetary system veers to an unsustainable course. It will be a matter of brainstorming and providing food for thought, rather than a scientific result that has been considered and modelled in every respect. The aim is to try to go beyond the dogmas, thought to be unquestionable, of the current monetary system and to wonder at its in-built contradictions from a bird’s eye view.
Original date of Hungarian publication: 27 September 2013