If you have ever thought that life is just getting too complicated, you may well be right. Life can indeed be too complicated. There is evidence that today many aspects of the way we live are over that limit, and it is this that explains many of the problems we face and the everyday irritations we encounter. This is not a simple matter of markets versus politics or public as opposed to private. Certainly government is the source of much of the excessive complexity, most notably through its regulative function, but much of it has purely private origins. Excessive complexity is found as much in business and its practices as in regulations and laws put out by the state.

The idea that complexity is bad and that simplicity and directness are preferable is a commonplace. KISS (Keep It Simple Stupid) is a frequent exhortation in both business and the military. Many generals and businesspeople have argued that simple, straightforward ways of doing things are more likely to realize goals than more elaborate and complex ones. In academic life, the principle of parsimony (that you should go for the argument or explanation with the fewest elements or assumptions) is widely accepted. This principle was classically formulated in the 14th century by the English philosopher William of Ockham (hence its popular name “Occam’s Razor”) but can be traced back as far as Aristotle (in The Posterior Analytics).

The explanation for this widespread belief and practice is itself simple. The more complex something is, whether an explanation or an activity, the more likely it is that something will go wrong or turn out to be false. In science, complex hypotheses are more difficult to clearly falsify and so do not help with the evolutionary growth of understanding but hinder it. In warfare, a complex campaign plan is much more likely to come undone, with potentially disastrous results.

However, economists have a slightly different take on this question. In general, they welcome complexity and see it as a good thing — up to a point.

Prosperity Requires Complexity

For economists, increased complexity is associated with greater wealth and material well-being. In a very simple economy, the division of labour is limited and people are very poor. As the division of tasks becomes more complex and people become more specialized, the productive process as a whole becomes much more complex and requires increasing levels of coordination (primarily by market mechanisms and the price system). One particular aspect of this is the increased use of capital (saved-up production).

This last point was theorized by the Austrian economist Eugen von Boehm-Bawerk in the idea of the roundaboutness of production. For example, if you want to catch fish the simplest way is to tickle them and catch them manually. A more roundabout way is to first make a fishing rod and then get the fish. This takes more time and is a more complex procedure, but you get more fish. An even more roundabout and complex procedure is to make a boat as well as nets and lines; this is going to result in catching even more fish. Generally, the more complex and roundabout the economic process is, the more wealth will be produced.

However, we can go further than that because this isn’t only a matter of output or material wealth. More-complex societies are also associated with higher levels of general well-being and human flourishing. In a simple community, one in which there are both fewer people and fewer and less varied interactions among them, life is very predictable and easy to understand but also less varied.

By contrast, in a larger society with many kinds and types of interactions, which often change over time, the range of possible life paths and of experiences is much greater. This contrast is classically captured in the comparison of life in the small rural community on the one hand and the large city on the other. In a more complex society, there are far more opportunities open to people and those opportunities in turn are more varied. This means that the chances of realizing your talents or following (or indeed discovering) your interests and passions are much greater.

For example, if you are musically talented and living in a simple society, you may never discover that you have this talent. Even if you do, you will not be able to express and realize it to the same degree as you could in a complex society in which you would have easy access to other musicians, composers, and instrument makers as well as having larger audiences.

Part of Something Larger

In general, human beings can do more and realize their potentials more readily the more human interactions they have and the more extensive and complex the system of human interaction of which they are a part. They are more likely to be fulfilled, their chances of happiness are greater, and they will find it easier to escape or remove themselves from intolerable or even just unpleasant circumstances. In cultural terms, complex societies are more likely to be pluralistic and tolerant, with a wider range of lifestyles and beliefs.

If this is the case, why then do so many people exalt the claims of simplicity? Is this one of the instances where economists are opposed to the received wisdom, and right to be so opposed? Certainly economists are correct to reject the common argument of moral philosophy that a simple and austere life is preferable to a complex and comfortable one. The former may be better for some people but not the majority. Ludwig von Mises captured this view when he said that economics had little to say to people who wished to live the life of an anchorite (a hermit) but such people are rare.

However, things are not so simple. Complexity in economic and social life has costs as well as benefits. While it brings greater opportunities and increases choice, many people find increased choice and opportunity and their consequences uncomfortable and disturbing, even threatening. You may find this a regrettable reaction and disagree with it or see it as not well-founded (as I do personally), but it is undoubtedly a reality, and that reality reflects something profound in the psychological makeup of many people. (Research suggests that just under half of the people in contemporary developed societies react in this way to complexity and novelty.)

So a complex society will offer greater opportunities for human flourishing and development but will also make many feel at least uneasy and uncomfortable.

Moreover, it simply is the case that in complex processes and ways of doing things there are more things that can go wrong. The more complex things are, the greater the chances that one part of the whole will simply not work or not function as intended. Because complexity goes with and involves greater interconnectivity, this increases the likelihood that one thing malfunctioning or failing will lead to other things not working. In the extreme case, this can result in a cascade effect in which one failure leads to a series of other, secondary failures. This can lead to a systemic failure, in which an entire complex system or organization breaks down because of an initial trivial glitch. The more complex a system is, the higher the chance of this happening. In this case, the argument is that greater complexity also leads to greater fragility.

Top Down vs. Bottom Up

This last point does need to be qualified, however. The extent to which complex systems or organizations are fragile depends crucially on they way they are organised. Top-down, centrally planned systems are much more brittle and less resilient than polycentric ones that use impersonal mechanisms such as the price system. This can be seen even in warfare, in the distinction between the heavily top-down second-generation model used by the United States and the more decentralized one developed by the German military in the late 19th century.

However, even systems or organizations that are decentralized can become too complex for their own good. The explanation for this is to be found in another economic insight. You can have too much of a good thing; or as the economists say, all human action is subject to diminishing marginal returns. Initially, as in the fishing example above, each extra element of complexity brings more benefit than costs (fish as opposed to time and forgone consumption in that instance).

However, for a given and constant set of circumstances, each additional layer of complexity brings a smaller positive return until finally the costs exceed the benefit. At that point, the social stress and the chances of things not working reach a level at which the costs they produce are greater than the benefits of increased output or opportunity. In addition, the chances of a systemic collapse become much greater.

This last point was spelled out as a historical argument by Joseph Tainter in The Collapse of Complex Societies, which looked at the way complex civilizations reached the point at which the returns to social complexity became negative and consequently collapsed, with society reverting to a much simpler level of social and economic organization.

We can see all around us signs that many of the systems we are part of have reached the level of excessive (or perhaps maximal) complexity. The biggest example is that of financial services, where one clear lesson of the crisis of 2008 is that the whole system of financial transactions and relations had become too complex to manage and was, as events showed, very brittle. Another is the increasing fragility of energy-supply systems such as grids.

Many of us will experience the results of excessive complexity in our everyday lives, in trying, for example, to deal with customer complaints or other online services, or (increasingly) in trying to do things like traveling long distances by air. Right now, the costs of the complexity are apparently borne mainly by individual consumers (in the shape of things like spending time on automated phone lines) rather than the producers, but all producers are also consumers and so this is a general phenomenon. Companies in a number of sectors are increasingly affected by systemic failure in things like distribution and logistics or the working of large IT systems.

Some of this, but not all of it, is undoubtedly caused by badly designed or excessive regulation. Some is generated spontaneously by private actors. In addition, the high levels of intrusive and costly regulation are both a cause and an effect of high levels of complexity, so there is a two-directional process going on. The principal cause though is truly fundamental.

Ultimately, the costs of complexity, in both the private (personal) and the public spheres are due to the knowledge problems that all human beings face at all times. We simply do not have the access to the kinds of knowledge we need to make highly complex systems work all of the time. The use of things like market mechanisms and the price system mitigates this enormously but does not remove it. Complex systems, in particular planned ones but also decentralized ones, will produce less and less benefit as knowledge problems become more severe, and this applies to private actors as well as governments.

We should rely wherever possible on decentralized and polycentric ways of structuring processes and institutions rather than centralized and hierarchical ones. This applies to all kinds of institutions, including government, firms, charities, political parties, and churches.

We should also look for ways of changing the circumstances that determine the maximum limit of beneficial complexity through things such as technological and social innovation. Modern societies are much more complex than premodern ones, and one reason is that innovation has pushed out the “complexity frontier” beyond which the costs exceed the benefits.

Finally, in some cases we do need to revert to or move to simpler ways of doing things. This may be a temporary adjustment, but it would be a recognition of the limits to human capacity. To ignore this is to commit the sin of hubris, and the result of that is always nemesis.