COMPLEXITY: Physics of Life

Katherine Collins on Better Investing Through Biomimicry

Episode Notes

We are all investors: we all make choices, all the time, about our allocation of time, calories, attention… Even our bodies, our behavior and anatomy, represent investment in specific strategies for navigating an evolving world. And yet most people treat the world of finance as if it is somehow separate from the rest of life — including people who design the tools of finance, or who come up with economic theories. Many of the human world’s problems can be traced back to this fundamental error, and, by extension, many of the problems we create for other life-forms on this planet. What changes when we take the time to pause, and listen, and reflect on how the biosphere already works? How do we balance innovation with sustainability, or growth with resource distribution? Could a careful study of nature not only lead to better business outcomes but also help us heal the living world?

Welcome to COMPLEXITY, the official podcast of the Santa Fe Institute. I’m your host, Michael Garfield, and every other week we’ll bring you with us for far-ranging conversations with our worldwide network of rigorous researchers developing new frameworks to explain the deepest mysteries of the universe.

This week we talk to SFI’s new Board Chair Katherine Collins, Head of Sustainable Investing at Putnam, about insights encoded in her book, The Nature of Investing. We discuss how investing has transformed in the 21st Century and what new challenges have emerged because of it; the tragedy of value capture; the push and pull between sustainability and efficiency; the consequential differences between risk and uncertainty, problems and mysteries; how multiple timescales interact to produce complexity in the market; balancing growth and development; and what all this means for those who want to do good and not just well with their investments…

If you value our research and communication efforts, please subscribe to Complexity Podcast wherever you prefer to listen, rate and review us at Apple Podcasts, and/or consider making a donation at You can find numerous other ways to engage with us at Thank you for listening!

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Podcast theme music by Mitch Mignano.

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Related Reading & Listening:
Katherine’s Website (where you can buy a copy of The Nature of Investing)

Katherine’s SFI Profile

SFIs Alien Crash Site 12 with Katherine Collins

Re: Putnam’s Sustainable Investing

ESG at Putnam: A Digital Resource Guide

“The coming battle for the COVID-19 narrative” by Samuel Bowles & Wendy Carlin

“Economics in Nouns and Verbs” by W. Brian Arthur

“The information theory of individuality” by David Krakauer, Nils Bertschinger, Eckehard Olbrich, Jessica C. Flack & Nihat Ay

“Industrial mass-capture fishing may undo the benefits of schooling, according to a new study from UC Santa Barbara co-authored by SFI Postdoc Albert Kao…”

“Group Decisions: When More Information Isn’t Necessarily Better”

Complexity 35, 36: Scaling Laws & Social Networks in The Time of COVID-19 with Geoffrey West

Complexity 62, 63: Mark Ritchie on A New Thermodynamics of Biochemistry

Complexity 13, 14: W. Brian Arthur on The History & Future of Complexity Economics

Complexity 30: Rethinking Our Assumptions During the COVID-19 Crisis with David Krakauer

Episode Transcription

Katherine Collins (0s): I kind of liken the economy to a person. You can gain 30 pounds cause you're having a baby and it's awesome. You can gain 30 pounds because you ate a lot of pizza it's not so awesome. And you know, the economy is the same way. The economy can grow in a way that is improving overall health and wellbeing and capacity of the whole, including the individuals within the whole, or it can grow in a way that is extractive and divisive. And the headline number is the same, but it's not the same implication at all.

So this past year, I think for all of us has been a chance both personally and professionally to kind of step back and ask that essential question of why have I been on the path I've been on? Is it enough? Is it enough on all the dimensions that in some cases are newly illuminated to me? And if not, what might make sense from here?

Michael Garfield (1m 14s): We are all investors. We all make choices all the time about our allocation of time, calories, attention, even our bodies. Our behavior and anatomy represent investment in specific strategies for navigating an evolving world. And yet most people treat the world of finance as if it is somehow separate from the rest of life, including people who design the tools of finance or who come up with economic theories. Many of the world's problems can be traced back to this fundamental error and by extension, many of the problems we create for other life forms on this planet. What changes when we take the time to pause and listen and reflect on how the biosphere already works? How do we balance innovation with sustainability or growth with resource distribution? Could a careful study of nature, not only lead to better business outcomes, but also help us heal the living world?

Welcome to 


, the official podcast of the Santa Fe Institute. I'm your host, Michael Garfield, and every other week, we'll bring you with us for far ranging conversations with our worldwide network of rigorous researchers, developing new frameworks to explain the deepest mysteries of the universe. This week, we talked to SFI as new board chair, Katherine Collins, Head of Sustainable Investing at Putnam about insights encoded in her book 

The Nature of Investing

. We discuss how investing has transformed in the 21st century and what new challenges have emerged because of it.

The tragedy of value capture, the push and pull between sustainability and efficiency, the consequential differences between risk and uncertainty problems and mysteries, how multiple times skills interact to produce complexity in the market, balancing growth and development and what all this means for those who want to do good and not just well with their investments? If you value our research and communication efforts, please subscribe to 


podcast wherever you prefer to listen, rate and reviewus @applepodcasts and/or consider making a donation at


You can find numerous other ways to engage with us at 



Michael Garfield (3m 32s): Thank you for listening. Katherine Collins. It's a pleasure to have you on 


Podcast. So you just became the new board chair at SFI. So welcome. And in preparation for this call, you sent me your delightful book, 

The Nature of Investing: Resilient Investment Strategies Through Biomimicry

. We'll link to this in the show notes. This is the product of a nonlinear path that you have traced in your life, I guess, as the crow actually flies rather than as the crow proverbially flies, if you can trace your strange path in and out of and back into the world of investing so that we can anchor this conversation, as I know you and I both like to do in the human, the personal, and the biographical.

Katherine Collins (4m 21s): Absolutely. For the sake of trackability, let me split things into three major sections. So I had a very long initial chapter right out of college as an investor at Fidelity, one of the largest investment firms. I thought it would be there two years and figure out something about the stock market, learn something useful and move along with my life. And it turned out I love it. I love it so much. And the thing that surprised me is that at least for long-term fundamental investors, if you are a curious person and you just want to learn more and more and more about how things are made in the world and how different systems connect with one another and what might be emerging in the future, it is an amazing perch.

And so I spent 18 years in that first long arc of very traditional investing. So doing heartful long-term fundamental research, which basically means you try to find out everything you can about a company or an industry, whatever it is you're investing in. And by having that more complete understanding, hopefully over time, you're making better and better decisions. So I loved that curious element and kind of the open-ended connected to our world element of investing that I started with. But during that period, a lot of things were developing, some of which were specific to the financial field, but some of which were more universal.

We found that like a lot of professions, the more expert you get the narrower your professional field or scope tends to be over time. And I wanted my scope to be broadening and not narrowing in this specialized way. So there was a little bit of a push and a pull there. And then the second element that was a challenge is I had been interested in sustainability issues or what we now would call sustainability issues really all through my life, doing a lot of transdisciplinary kind of research all through my time in college and really all through my investment career as well.

But increasingly we were finding that there was a little tension there also. The sustainability conversations are happening in one place and the financial conversations are happening at another place. And we weren't yet so great at translating between the two. So my second big chapter was to do a really deep dive to try to get closer to the roots of sustainability. So this is the period during which I wrote the book that you just referenced. I did a Master's Degree at Harvard Divinity School, studied philosophy. I had my own independent research firm, which I kind of described as the time to take the things that are in the corner of your whiteboard that you're going to think about someday, but the day never comes.


I took 10 years to dive into that list of things. And I studied biomimicry and natural systems during this period with the idea that natural systems are a much better framework for thinking about not just the financial markets, but investing in general in a way that is closer to how the world actually functions as opposed to kind of a factory model. And so now I'm delighted to say this third chapter is my work at Putnam. I'm the first head of sustainable investing at the firm. I've been there four years now. It's combining all of that at long last into one giant role, which is intended to connect the dots to make better investment decisions by having this more complete kind of holistic view of what is kind of true cost, true benefit from a company and investment perspective.

Michael Garfield (7m 40s): I mean, it seems like one of the nuggets of wisdom that comes out of this book is that taking the shortest on-ramp doesn't necessarily get you there in the way that you want.

Katherine Collins (7m 57s): So that's a very gracious interpretation. Yes.

Michael Garfield (8m 1s): And as a career ranter I think I am sympathetic to that. You start this book by talking about three changes that you invite people to undergo with you, to rearrange to reframe and to refrain. And I would like to start there, if you can, if you want to just provide a little bit of exposition here about what you mean specifically with those three terms. And I think that that'll give us a good launching off point to get into some of the nuance in this book.

Katherine Collins (8m 32s): So again, the premise of the book is that the practice of investing in maybe even more particularly the practice of finance that goes along with it is pretty often seen as sort of a more mechanized, more transactional set of activities. And there's a role for that transactional element. I don't mean to be dismissive about it, but when you think about the real purpose of investing in the thing that gets me really excited to make this my profession, the idea is that you want to be over time creating something of value in the world, not just trading straws around in the same pile over the longer term.

And so the three elements I started within the book, these ideas of rearrange, reframe, refrain were an effort to pause before diving right in, and really set that bigger context for everything that was to follow. And so of those three, it's interesting, I get by far the most questions on the last one, which is refrain, the idea that you would pause and maybe do less and not do more as sort of a standard objective is not especially intuitive for a lot of folks.

And I really got that directly from my biomimicry studies. And I think had I been trained more formally in science, I would have taken the same thing from that education. The idea that if you really want to understand something, you need to shush and observe and really trying to do nothing but observe for a pretty extended period of time, not to leap to a theory, not to leap to an explanation, not to leap to a judgment, not to go forward with your ideas about how things should work or could be, but to really pause and take in as much as you can about the facts of a given situation.

And from there start to really do your work and your inquiry. So I wanted to start the book with that deep breath and that sort of pause like, Hey, what are we really curious about here? What do we wonder about, what do we want to observe in more depth? And from there, you can get to a really interesting place.

Michael Garfield (10m 40s): So to get to that really interesting place, and we can try and compress this into the span of a podcast episode, but I mean, the fact that you've written an entire book on it, that is itself a condensation and synthesis of much, much larger ream of experience and research requires a kind of time privilege. And as someone who lives in an extremely fast paced world, and you even mentioned this in the book that it is difficult for many people who are operating within a particular system of incentives to take the time to even have these thoughts.

And so, this is where I want to start to map out the problem with you and then start to identify places where biomimicry which is like for our purposes, loosely synonymous with complex systems thinking, offers us some strategies for starting to untie the knot into which we have tangled all of civilization and the biosphere. So like first is like, as part of your reframing, you talk about recognizing ourselves as part of nature, rather than as set aside from it in some way.

And you write about this in some really interesting ways in the book that at least for me, seemed to kind of allude to the time that you took away in divinity school. And like this notion of Paul Tillich's ultimate concern like religion as a notion of ultimate concern, or the etymological origin of that word as like a reconnection, which is a process and a virtue that you come back to again and again in this text. And so I like where you start this book. You say, we are all investors, like if you're thinking in terms of metabolism and thermodynamics and evolution, and the idea that every organism represents a metabolic and developmental investment in a particular strategy for navigating an environment that the information aggregation of evolution has modeled and embodies in these organisms and that there is a really lovely non-duality here.

So that's us as investors. And then that's also our instruments, which are kind of like species of creatures occupying different niches in this system. I'd love to hear you riff on that a bit and give us some examples of the different kinds of creatures that like to the extent that we have created in our efforts to control the world, that we have created a new wilderness that exists in this deeply abstracted realm of financial agents that it's kind of this like love crafty.

We're like on the inside of this giant hyper object, we call the economy. I'd love to hear you go in there as a skilled taxonomist and talk about some of the different financial instruments and investment strategies and how they look to you as an ecological thinker.

Katherine Collins (13m 41s): So one thing that is intriguing to me when I talk to my friends who aren't investment professionals is that they reflect on the whole world of finance and sometimes the whole world of capitalism that goes along with it, as, you know, sort of this strange and foreign land that I didn't ask to visit. And now I'm stuck here and I'm not sure I like it. And one thing that's really interesting to me to observe about my own career is this is my hometown. So like it's not perfect.

There are some seedy corners in some neighborhoods I'd rather not live, but it's all very comfortable. Once you're in it, it's pretty affluent. I have friends who are pretty senior folks in Washington, and I feel the same way about a lot of things about how government functions and to them that's their hometown. Like they just get it and can maneuver with kind of fluency and ease. So it is a real gift to be able to observe both from the inside and the outside for a system like this. And you alluded to a really important condition in the midst of your query which was the idea that we want to be able to analyze and control things.

And I do think that a big point of the book really of the whole huge decade plus body of research that went into it is that there is this root of the desire for control that's at the heart of a lot of structural and kind of interpretive flaws, very hard to separate yourself from a system that you're a part of, but it's even harder if you want to cling to the idea that you somehow are in charge of it. And so this, this is a real challenge for all of us.

It's especially challenging. I think for many folks who have been educated in Western educational settings, where you have been taught that if you want to understand something, the first thing you do is you take it apart. And then you kind of dissect all the little pieces and you try to understand all the little pieces, and then maybe if you have time, you kind of reassemble them. And as we all know, and as you know, one of my main motivations for hanging around SFI for so long, as you know, that's not really how a lot of things in the world function. You can't take it apart and put it back together and actually have a complete understanding of things.

So this is a challenge within finance and I'd say within a lot of professional settings, probably within a lot of human settings, the idea that the first thing I want to do is disconnect myself from the system and pretend that it's something over there, because once it's over there, I can then take it apart and dissect it and put it back together in a very sort of linear and conventionally logical way. It's a lot more interesting, but also a lot harder to put yourself in the middle of that system and try to understand some of the iterative loops.

So to give you a kind of tour of some of the things that are really easily observable, if you're in the middle of investment practice, I'll give you a sense maybe with the concept of feedback loops at the heart of it. So what are the signals that are coming at you every day and how have those changed over time? One really easy and visible signal for all folks, whether, in this profession or not, is the simple signal of price.  Pick a security, any security, Bitcoin hit something from the headlines. If you want to price, it's a pretty intuitive, easily understood signal.

When I started in the profession, which was not that long ago to get a real-time price on a security, you either had to be very privileged and working in a professional setting that paid a lot of money to get that real-time price, or you had to be patient and wait until it was printed in the paper the next morning so a whole overnight cycle, and then you could check where the security had closed the day before. We often presume that having real-time pricing is automatically this wondrous thing, but you know, what function does that serve is my question.

And there's a narrow set of applications for which that real-time pricing is helpful or efficient, but that doesn't mean it's more effective. And so the default now, when I log in, in the morning, even on my personal devices, let alone my work devices, is a real-time price on everything. And not only that, it just keeps coming unless I proactively turn it off. That is the signal that is literally flashing before my eyes all day, every day. If you're a professional money manager, your relative performance is calculated based on those real-time prices.

Now you can hit refresh all day long and just follow the basis points as they come and go. It is mesmerizing, I got to tell you, but it is almost certainly a poor use of time. And so that's just one example of this feedback loop that sort of emerged. And yet who decided that, who opted into it. If you think about the characteristics of it and feedback loop, it's supposed to be relevant information with an effective receptor to take in that information and an appropriate response.

Those are the three essential, functional elements. So this is just one example within finance of a very, very loud signal that is almost unavoidable. And yet what is the receptor to take that in and the appropriate response. And should that be a signal at all is a pretty legitimate question. So I'll pause there. I mean, that's one tiny little microcosm, but it's a pretty vivid example of where a system can kind of go seemingly on its own, even though we know we all have a little bit of influence along

Michael Garfield (19m 1s): So this is precisely the kind of ominous Jurassic Parkstuff I wanted to get into with you. You give a couple of really interesting examples. One is the three by three morning star grid, the assessment tool that allows people to bundle particular investments into different classes and then decide, and you tell the story about how your funds were right on the line between these two basically artificially generated categories.

And you had people saying, well, if it slips over to the other side of the line, I have to sell, I have to pull out, which is related to something that Jessica Flack and Melanie Mitchell touched on in one of their recent articles for Ionabout bad metrics about grading and like how, as soon as you try assessing students for this particular set of metrics, then they'll achieve that, but they won't actually achieve real learning. And you quote in here Robert Kennedy about GDP, which I don't think anyone listening to this show is going to be shocked by a critique of GDP as an insufficient metric of the health of a nation.

But, just to put this in here, because it's such an elegant statement, the gross national product does not allow for the health of our children, the quality of the education, the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. And yet this is another sort of post on the rat king that we have here. And yet the more we try to measure all of those things, it seems that the more those things, at least in the system, as we have it now become themselves sort of subject to speculation.

We found a way to measure them all on the same chart, but that's not the kind of multidimensionality or decentralization that you're talking about. And so there's a tension it seems to me here between true cost accounting and a number of other constraints such as the time that we have to respond to change, or the amount of energetic or computational resources that we have to navigate the complexity. So it's about finding our level. And I'm curious because you give so many examples in this book that are not quantitative metrics, that are qualitative metrics. You talk about the way that learning biomimicry made you feel, you talk about gross national happiness.

And so there is this paralyzing question in my mind about how we make the decision in our economic models to limit the scope of that which we quantify, not as a way of intentionally maximizing externalities and creating more efficient gains in the short term, but as a way of actually honoring the sort of natural principle of being no more all-seeing than is actually necessary.

Katherine Collins (22m 14s): There's a lot of layers there. And I have a lot of recent examples here too so the work of sustainable investing, as I mentioned, is the intention is to broaden all of that back out and to think about multiple dimensions of health and wellbeing, and by doing so to make better long-term decisions. So all investment relevant in the end, it's not an either or premise. But I'll tell you some of the challenges that have come up. It's the exact same challenge.

It's turtles all the way down, right? This push and pull between wanting things to be both efficient and quantifiable. Those are two things that are deeply comfortable for most of us. We live in a very, very uncertain world. And again, one body of work I've benefited from so much related to SFI. And the research there is the distinction between risk and uncertainty, how vital that is and how totally uncomfortable it is to sit in the uncertain part instead of the risky part. If something's a risk it's analyzable and you benefit from doing the analysis.

So it's an awesome sort of can do space. And most of us presented with a risk or in theological terms, this would be a problem. You sit with the problem, you dive right in, you analyze. And after analyzing it, you are in a better place to make a better decision. You might be wrong, but you have improved your odds by analyzing it. Something that is uncertain or a mystery in theological terms is not that. It's where it is an analyzable. The outcome is unknown and the range of possible outcomes is also unknown.

So a problem you need to sit with, and that is not fun for any of us. And so the tension that you're appointing to this idea that every metric we have, regardless of the topic, is a proxy for something else nine or 10 times out of 10, I would say, and we forget that, right? So we use the metric as if it's sort of a statement of truth, as opposed to a clue about an underlying condition that we're trying to assess. So there's an inherent mismatch at the very root level of almost all metrics that we tend to forget about in part because we're too busy and in part, because it's overwhelming to remind ourselves time and time again, like, oh, this metric, it's just a clue.

It's not a conclusion. Don't ever forget. It's not kind of a statement of capital T truth. And that gets harder the more interesting that you make the metrics. So look at the sustainable investment world for example. I have fantastic metrics on the gender composition of boards of directors. Why do I have fantastic metrics on that? Because you can count them. You can count the people. It's a finite problem. It's a little bit of legwork to do it, but you can count it and have very high confidence in the integrity of that analysis.

I do care about the gender composition of boards. It's ridiculous, really mismatched compared to any subset of the general population, but why do I care about gender composition of boards? It's because they care about having healthy diversity at the decision-making levels of the organizations in which I'm investing. Well, gender composition of boards is really far from thinking about more multidimensional definitions of diversity. And that in turn is really far from thinking about the inclusion of that diversity, which is where you actually get the benefit of it being there in the first place.

But I don't have metrics for those other things. I have metrics on the first thing. So that's what I'm going to code into my database. And that's what I'm gonna sort on when someone comes and asks us about our process. And for most people who are asking about process, that would be a big check plus on the report card and the folks who are willing and eager to have this more substantial conversation are relatively few. So it's an issue that comes up one situation after another. I'm constantly reminded of an early mentor of mine, Leslie Christian, who was a real pioneer in sustainable investing. And she is colleagues with Judy Wicks, who is a pioneer in sustainable business. Judy Wicks had this notion of a beautiful business. So this idea that she would wake up in the morning and she wanted to look around at her business and how it connected with its employees and its suppliers and its community and its customers, and see all these pieces coming together and know that this was a beautiful business and they could pay their bills at the end of the day, but that was one of many indicators.

And Leslie had this idea that she wanted to have a beautiful portfolio where all the numbers were great, all the conventional metrics were great and also so much more. I've really kept that idea of beautiful portfolio in my mind, as we've gone forward into our work at Putnam. And I'm excited to be in a place literally an organizational place, but also a moment in time where there's at least some room to ask that bigger, more essential question, but it's uncomfortable. And it gets us right back into that kind of trade-off between risk and uncertainty like, okay, if your numbers are great, I'll let you ask these more open-ended creative questions, but if your numbers aren't great, I got no time for that.

And you know, that's fair. I would say for where we are in the world right now, but it's a riddle that is not going to be solved by just adding more and more metrics that are proxies for much deeper, more interesting issues. We have to do that work for sure. But to mistake that for the finish, as opposed to the start is a really big problem. And when you have a system that is very focused on efficiency and kind of mechanization of processes, that problem is amplified.

Michael Garfield (27m 54s): So to explore an angle on that, one of the things that in reading your book I just found myself constantly coming back to this because that particular road is very well trodden in my mind at this point, is the conversations that I had with Geoffrey West for this show and his sort of ringing the bell for the finite time singularity, which just for folks who haven't heard that episode, Geoffrey West is a physicist whose research on biophysical scaling, the scaling of distribution networks in the body, the circulatory and nervous system, et cetera, but then also took that work, he and his collaborators, into a study of cities as social reactors and how cities are this kind of ever accelerating ratcheting, social reactor that brings people into affiliation with one another and works in the way that you identify sort of one of these biomimicry virtues of connecting and finding new diversity in these recombinant relationships. Like you talk about plant pollinator relationships in the book, you know, with the mascot honeybee.

The problem that West identifies is that this leads to a point at which the problems that we're creating, that we're innovating, not just wonderful new things, but horrible new things. And that the problems that we're creating are coming at us faster and faster. Because you've written this book that looks at across, you know, the short, the medium and the long-term. And I think that that really is in some respects, a core fluency in complex systems thinking is being able to stretch out to multiple time and horizons and kind of see them all in relationship to one another.

I wanted to like bring up a couple of things that you talk about here. One is high-frequency trading and the flash crash of 2010. Go in, however you like into this forest here and hack your way through it for the rest of us, however you see fit. But the fact that there was high-frequency trading has led to a series of crashes that economic forensics still doesn't properly understand given all the time in the world, that we still don't quite know what happened back in 2010. A related problem is that the burden of information absorption on financial analysts is now so great.

You mentioned the time it takes just to read reports has just gone through the roof. And so it's getting harder and harder to actually like see the forest for the trees, which is a related to a problem in the hyper specialization of scientific expertise. And the way that our credentials conferring systems in education are not changing as fast as the landscape itself. So like when you talk about risk and uncertainty, basically my question for you is it seems as though the world today is far less about risk, far more about uncertainty than it once was.

And so given those examples, how do you think about this? What are the investment tools that you recognize work working best for a game in which are fundamentals of value are themselves changing? Is the mutual fund a horseshoe crab, like a stable strategy amidst a changing world, or is it like a stegosaurus that doesn't survive the proliferation of a new terrestrial ecosystem?

Katherine Collins (31m 27s): That's a pretty vivid choice. Horseshoe crab or the stegosaurus either way. I wished for something a little more, I don't know what, so a few layers there that are really important. I think what you're alluding to within the field of finance and the different product forms and approaches to investing, it's the same set of questions that we see again in the organizations we're investing in.

It's the same diagnosis when I look at a lot of other functions in the world as well. So one thing that has led to the high-frequency training element is, again, this idea that we're not always as creative as we think. So what did we do when we got some fancy new toys? We did the same thing we'd always done, but faster and more. There's no real reason for high-frequency trading, but there's sort of a opportunity available if you're a little bit faster than the other guy. And so why not go ahead?

And that's true in a whole lot of different fields, the idea that the first wave of technology or new tools or development almost always is applied to doing the last thing faster or bigger, but not different. The next wave that comes usually is different. And so we've talked a little bit about some topics that are some days on the glass, half empty side of the ledger. For me, I think this bridges to the glass half full side, which is where are we now, one thing you can do with lots and lots of more speed in data conveyance and processing is to do the same thing you used to do, but faster and faster and faster and bigger and bigger and bigger, which is essentially the Geoffrey West model, but applied to trading, right?

And it does exactly what you think. It gets faster and faster and more and more fragile at some point. And, you know, as we all know, doesn't always resolve itself in a really positive way, but the other path you can take, and this gets to, you know, when you look at Geoffrey's charts and there's the curves that are going up into the right and they're kind of exponential, but then another curve has to start, right? And that's the new thing that starting, which is much more interesting. So we could take those same capabilities and have started to at least in data recognition and processing and pattern finding and everything else and steer them at either different inputs or different intentions.

And that gets really interesting. So when I think about all the different things I could use those same high-frequency tools for, what if I could use those high-frequency tools to actually assess, I don't know, employee wellbeing at a company that has millions of employees. There's probably a way to do that. We've got a few little clues about new tools that are underway to try to get closer to that. They're pretty modest at this point, but you can kind of see the potential there. That would be an additive and interesting and different insight as opposed to just price, price, price, faster, faster, faster.

So we're starting to see some of those applications.  There's some new imagery from satellite technology that gets to a map of real-time methane emissions. So instead of waiting three years for the EPA to catch someone and find someone and then see it reported in the news. And then for me to follow up as an investor, you can just look and say, Hey, there's a leak here right now. It's in your best interest to stop the leak. You're losing money and you're frying the planet, let's fix it. So I think when I look at those curves of Geoffrey’s and we've talked about this many times, when I see that the near vertical part of any one curve, I start to feel awfully anxious.

But when I see that new curve starting, that's where there's a lot of potential and we don't have to do just the same old things faster and faster, more and more desperately. We can choose to do something newer and better. And that's where I see a lot of amazing potential.

Michael Garfield (35m 16s): Well, that brings me into the $64 million question, someone leading Putnam sustainable investing. You've got a great section in this book on balancing growth and development. And to again, invoke a circulatory system metaphor or a nervous system metaphor for the economy, it seems like a lot of the innovations that have been made in investment and in finance lately are at least at the edges of that, like among retail investors, it's like you already identified a realtime prices, but then there's also fee-free trading.

And here we are, after GameStop and AMC, and you've got pundits saying, well, you know, that clearly was a bad idea. You mentioned in the book that people are trying to pump the brakes to protect investors. And that there's a tension there between access and between risk mitigation, which again has to do with sort of like the surface area of the margin of this thing, much more creativity, much more instability as we increase the surface area of the economy.

And so, it would seem that to balance that growth, you need to increase the size of the aorta, which gets to thinking differently about redistribution. And it relates to a conversation that is stretched across episodes recorded with Brian Arthur and with Mark Ritchie of Syracuse University and Melanie Moses and others about what these scaling law models mean. At one point Ritchie’s model, for instance, the system is limited by productivity, and then it's limited by distribution, which it seems like a lot, at least in many areas like food is a good instance where we're wasting a lot of food because we're producing more than we're capable of distributing.

You look at the amount of GDP growth over the last 30 years versus wage stagnation, et cetera, that looks like a distribution problem. And when I look at the natural world, it looks like the way that the elder systems we are listening to in this conversation have solved for this is by backing off a little bit is by making more room, that the 75% of ants that are doing nothing at any given time in a giant ant hill, Brian Arthur's advocacy for a universal basic income, but then there's like the other piece of it, which is you mentioned this in the book that we have to make sure that distribution is necessarily like centralization, that we're not just creating fragility.

And then really the bigger piece of this is your comments about failing gracefully in this book. It seems the conversation is too simple, too one dimensional around endless economic growth or total collapse of civilization. And people are promoting a de-growth kind of rhetoric or thinking, but that also seems limited to these almost uselessly abstract and oversimplified ideas of value and the kinds of growth that are capable for us.

So you speak a lot about realization in this and about the innovation of financial instruments that more closely match the kind of patterns that we see in reality in the non-human world, I should say. So I'm curious about your thinking about de-growth about the economic collapse, in what ways economic collapse might be surprisingly good, or at least offer opportunities for other kinds of growth that lead to a more resilient and ultimately beneficial kind of way of practicing economics.

Katherine Collins (39m 10s): Well, that last part of your comment, I think, is key. So a few things that I do just to translate this maybe to daily practice, and then we can loop back to the bigger ideas because these ideas are on my mind day in and day out. And I think they are really relevant for long-term investors to consider it. This is not a separate conversation than deciding what stocks to buy and sell in my mind. This is the essential question for deciding what stocks to buy and sell in my mind.

One thing we can do as investors, and again, SFI has taught me so much about this is ask a different question. Hopefully ask a better question or maybe a bigger question. And so to be fair, sometimes I get blank stares when I ask these questions, but I've been trying to get a little bit off script on purpose in our regular conversations with company management teams. So I will ask things for example, of a company that is essential in this accelerating access to creative forms of investing for folks who may not be experienced investors to ask the question to that group, instead of how much faster can you go, how much freer can you make it?

What do you want to slow down? Where do you want to insert friction into your processes? That's a fun question. And it's not one that I think they get as often as the opposite question, to ask a company that is known for steady or significant revenue or cashflow growth over time, instead of saying, Hey, is it going to be 12% or 14%? Let's figure it out to ask the CEO, what dimensions of growth are most important to you? In what areas do you want to grow?

So just broadening out the discussion, like, okay, it may or may not result in 30% earnings growth, but what do you have to grow within the company in order for anything else good to happen? And pretty often when you ask a question like that, you get answers like, oh, we really need to invest in our people. We have come up short on every possible target we've had for growing the capacity of our own team. And here's why that's harder than we thought. Here are the things we've learned along the way. Here's, what's possible if we are able to engage people who are really devoted to our mission and well-equipped to see it through here's. What's not going be possible if those people, aren't the first kind of foundation of our growth.

So in some ways it's just connecting that bigger conversation. It's not instead of the traditional financial conversation, but it's trying to put that in its proper place, which is a pretty small place compared even to one organization, let alone to the broader economy. So I like asking those different questions. I think it gives you a chance, again, to start with this notion of re framing. Towards what end is not a bad question to keep coming back to, and if there's not a good answer for that sooner or later, the problems tend to accelerate in the way that you were describing.

Michael Garfield (42m 16s): So again, to take the invitation that you're constantly making in this book and put things in context for goodness sake, don't trust general advice. Trust specific advice. So I'd like to reflect with you on what's going on right now in history, which is the reopening of much of the economy that has been closed over the last year due to the pandemic. And as you and I were discussing before the call, the way that this last year has by enforcing a slow-down, by putting the human economy on timeout, has had a lot of people sitting in the corner, reflecting on what they've done and the systems that they have sort of bought into without a lot of reflection, without time for that reflection.

And as is the case with the personal dimensions of illness where it's like, okay, I can't be productive. I have to sit here and reflect on this. It obviously develop a much more rich and nuanced set of values or at least acknowledge values that they have that were not necessarily always behind the decisions that they were making. And so like, just as one example is that a lot of people just aren't going back to work, that they realized that family is more important or that their sanity is more important.

And you know, this seems related to a piece that Sam Bowles and Wendy Carlin wrote together for Voxeu on the COVID-19 narrative. They're arguing that we've been thinking about things in terms of a balance of influence between the government and the markets. This is a very Sam and Wendy kind of statement. So much of human behavior is not motivated by state authority or by material incentives. It's not about obedience or about pricing and competition. It's about things like on their list, reciprocity, altruism, fairness, sustainability in group identity, social norms, the exercise of private power.

This is the meso scopic scale of human organization, of community at neighborhood organization that made itself so obvious during the pandemic when mutual networks had to sprout up as a matter of necessity. And I'm curious how you see all of this playing out, like I've been tasked by David Krakauer to kind of go around SFI and ask people about the reopening and about what people expect from the next year or so, not what to do per se, but where the constraints are? How are people going to be seeing things in new ways?

What are the meaningful new ways to consider all of this? And so, you know, again, it seems to always come back to how do we kind of model the unmodifiable, but I'd love to know yourthoughts.

Katherine Collins (45m 10s): Few things are coming to mind. One is that my divinity studies in many ways are by far the most professionally relevant studies I've ever undertaken. I find that perhaps because they are non-traditional skills, at least within the realm of finance, they are more valuable than the things that kind of everyone has been trained in and everyone knows. And one of the big arcs of study that I undertook in divinity school was study of trauma and resilience and fragility and recovery kind of all bundled together.

And a key lesson from that is that when you're in trauma, none of what you just mentioned is possible. It is true survival mode. There is no room for reflection and there shouldn't be. You need to kind of get to some level of health in order to have the capacity for reflection. And so the first thing I want to say is that I have been thinking through a lot of the same issues you just described in that, in and of itself as an incredible luxury. So to again, first kind of step back and put those questions into this bigger setting of the fact that such a huge proportion of humanity is still in that realm of trauma, I think is a pretty foundational recognition that can and should inform the direction for folks who are at the stage where reflection is possible and kind of making a different choice.

So that's kind of the starting point in this setting. I'm thinking of after divinity school, I did that big Camino walk across Spain, the way of St. James. So it was 500 miles. I've never done anything that extended before. And I thought it was going to be this wonderful spiritual epiphany, tip toeing through the wild flowers for a couple of months, but it was hard. It was really, really hard. And sure enough, I found that I was deeply reflective the second day when the weather was perfect and I only had to walk 10 miles and it was pretty flat, but then I got these awful blisters and then I hurt my knee and there was no reflection whatsoever for like the next month.

It was just one painful step after another. And then by the end, I was well enough that, I could have a little bit of space to kind of consider. So in a tiny, tiny inconsequential way, there's a lot of metaphor packed into that couple of months journey. So I think of it often when I'm trying to orient myself in the midst of the activities from this last year, but the questions you're asking I think are really essential ones. And they link back to what we were just saying about the insufficiency of some of our metrics as proxies for things that are deeper and more nuanced and may be more complete.

So one thing that we don't have great metrics for either in the economy or in investing or in life, I think is this question of enough, what is enough-ness on any given dimension of life? We kind of can feel it a lot better than we can actually tangibly measure it in most cases. And again, this gets to a root that I think is so essential. We're talking about how endless growth is a challenge and the idea that there should be graceful post growth models for all sorts of things is really necessary.

We probably need a different term for that, because even that term is so alienating. So growth 2.0 or growth in a different dimension as opposed to just, I'm going to keep going on this same path forever, but I kind of liken the economy to a person. You can gain 30 pounds because you're having a baby and it's awesome. You can gain 30 pounds because you ate a lot of pizza. It's not so awesome. And you know, the economy is the same way. The economy can grow in a way that is improving overall health and wellbeing and capacity of the whole, including the individuals within the whole, or it can grow in a way that is, you know, extractive and divisive.

And the headline number is the same, but it's not the same implication at all. So this past year, I think for all of us has been a chance both personally and professionally to kind of step back and ask that essential question of why have I been on the path I've been on? Is it enough? Is it enough on all the dimensions that in some cases are newly illuminated to me? And if not, what might make sense from here? So these are big, big questions. And again, to me, it still comes back to this question of risk and uncertainty.

The easiest course for many of us is to, I mean, there is just a pull back to like whatever used to be that is so strong because it's comfortable and it's knowable. And even if it's deeply flawed, you've been there before. And that is in many cases, a lot less daunting than something that might be infinitely better, but as new and not knowable a priori, I mean, it takes some courage to go in that new direction.

Michael Garfield (50m 7s): There's a lot in there. Where do I even let me think about this? Okay. So another conversation that comes up a lot on this show is one that I had with David Krakauer about a year ago this week, probably that we're recording this when we were kind of cutting a conceptual trajectory through some of the SFI researchers contribute to an essay series on coronavirus pandemic, and Bill Miller had written one on high beta investment strategies. Miguel Fuentes had written one on the fragmentation of social graphs. Leading up to revolutions archeologically historically we talk about civilizations collapsing, but what they actually do in the words of interplanetary festival contributor, Annalee Newitz is scatter adapt.

And remember, and so this was drawing on Tony Eagan's work about constitutional politics, that it would be great if we could come up with a kind of dynamic constitution that expands its regulatory influence, it's top-down influence in times where risk mitigation is preferable and then strips down to a fighting trim when it's time to emphasize agility and the ability to Dodge the ball from whichever direction.

And we may not have the collective wisdom to actually design these kinds of systems, but they do seem like they're designing themselves, that there's an emergent quality that just to put one sort of last glass bead on this glass bead game metaphor string. I remember a SFI fellow Albert Kao coauthored some work that was led by UC Santa Barbara on how mass capture fishing is reducing the size of fish schools in the ocean. And there seemed like a real obvious analogy to the Exodus from the clear net that's going on, that that people are aware that they're being harvested by predatory surveillance capitalism.

And so they're fleeing to platforms like discord, where they're trying to return to a more human scale and that that's also echoed and maybe a much more meaningful way in the real localization of economic behaviors. And you talk about how, even when people are locked out of various economic participation as investors in this larger arena, that we're starting to see a proliferation of new options for people to invest at the local level.

I'm just curious whether you see a balance in the sort of top-down design of this kind of flexibility or whether it's all happening so fast that we're in that sort of trauma mode that you talked about, and we're just kind flinging stuff at the wall and seeing what works, which is not a bad thing, right. That's a mirror sanabilis is kind of stay home and thinkabout things.

Katherine Collins (52m 60s): Well, there are a few elements that intertwine in your observations there. I think there's a really neat connection between the question of on what level do you want to organize? Like what scope and scale do you want to organize and the adaptability of whatever it is you're creating. In many cases, at least in the economic and financial world, the greater the scale, the lower the adaptability.

I'm not sure if that's true as a universal statement, but it is for most corporate organizations. It is for most economies, I would say it is for a lot of governmental institutions and kind of big institutions more generally. So you're treating heft for nimbleness, which is not a bad trade-off, but I think you're framing this question as a design question is a really key element. Pretty often the things that were designed to be kind of cool, innovative, small, nimble things can grow quickly enough that there are big, giant dominant things.

And there's a mismatch between the way that they've been designed and the function that they end up performing. So I think of a fairly long list of newer technologies that fall into this category where the technology inherently is actually pretty cool. It's just scaled all out of proportion to the underlying function that it was actually designed to perform. In some ways there are elements of the economy. There are certainly certain types of trading strategies that have the same issue. Something that's really neat when you're doing it with $10 million in your basement is not at all acceptable if you actually ended up influencing the entire global financial system. I talk with a lot of entrepreneur as part of my work. It's one of the most fun parts of the job is particularly talking with folks who are right on the edge of going from being in that startup phase to being kind of bigger, grown-up potentially public companies. Like that's not an easy or even a welcome transition for a lot of organizations. And so talking to the leaders about what is it that made you super cool and potentially disruptive, although it's not my favorite word when you were starting out and are those the same things that are going to make you awesome when you're a hundred times bigger or are those the things that are going to make you a menace and to really try to think ahead on that front, especially if you think you're going to grow tenfold this year and tenfold again next year, that's a real skill to have.

So I think one of the challenges more broadly is that we often are taking questions or metrics or activities that are best suited at maybe a small and nimble and local level. And we're trying to cement them into these much bigger infrastructures. I'll give you an example from sustainable investing that is really top of mind for me right now and I think potentially existentially troubling. So we've got giant financial system, big power of money flow in the world, and a lot of positive potential if we can redirect investing towards more beneficial outcomes on all sorts of different dimensions, but what is the first thing we want to do?

If we want to influence that system, we set up some standardized metrics and we sort things high to low. And we set a very clear kind of binary indicator for this is good. This is bad. This is acceptable. This is not, this is the threshold, above or below which we characterize your activity as worthy. That type of design description is almost a complete mismatch with the function that we're trying to perform. So if you are really trying to influence, for example, a transition to more renewable energy, the last thing you want to do is take a single backward looking point in time metric sort from high to low and divest from all the high numbers on that list.

It leaves you with a bunch of stranded assets. It leaves the most problematic assets in the least capable hands for migrating them in an effective way. And it really distorts in the meantime, valuation for the up and coming solutions that need to be more affordable in order to take off. So you've got this really strong, well-thought through intentions and then a total mismatch of the metrics that go along with that intention. So I think this question of matching design with function is something that my biomimicry studies and my work with SFI over the years has really helped me to hone in on and my personal, I'll share it with the world.

My little like nefarious Trojan horse is that every time I'm asked to comment on standards, whether it's regulatory standards or disclosure standards or something else, I just work in the words like appropriate or adaptable or evolving, like anything that I can get into the commentary that implies that this is a changing thing that is going to be iterative over time. It seems very small, but actually is gigantic when you look at the potential difference that an adaptive system could make, even on the simplest metrics in the world versus one that is frozen, but we like frozen.

It gets back to that question of certainty. It's false certainty, but it doesn't matter that it's false. It's still certain in it. Many of us would choose false certainty over real

Michael Garfield (58m 26s): Well, another shout out to Brian Arthur, because I'll be interviewing him soon about his recent essay on economics and nouns and verbs. That's sort of been lurking over this whole conversation about this argument that modeling everything in an algebraic equation means that you've specified all the variables and that's not what economies do. They're indogenous novelty generators. So thinking about it more in terms of a recipe, rather than a concrete prescription, I really appreciated how much attention you gave to design and form and function.

And you know, this kind of approach. You make a statement on page 121 for people reading the hardcover resilience is about maintaining function in light of disturbance, not retaining form. And this rings when I hit the bell of the shift that's going on in conservation biology and ecology right now about what you elsewhere in this book described as a shift from preservation to renewal and attention to meaningful diversity, rather than the charismatic species that it's not about the panda.

It's about what pandas do. And so in a weird way, you know, this opens us up into an inquiry, more suited to Harvard Divinity School, Katherine Collins, which is about, the questions that are left with us when we move into the 21st century, which is the century of complex systems science, and you've got papers coming out like the utter banger, "The information theory of individuality," which reframes our own identity as organisms in terms of the mutual information we exchange with our environments or with our own past and future states and brings us into something more like Alfred North Whitehead is process philosophy.

You know, so when you start thinking about yourself and when you start thinking about economic instruments as strategies and your own funds that you create there, their values, like what comes up for you in this epistemic shift, from the known quantity, from the risk to the uncertain from the noun to the verb. You talk about making the shift from static to dynamic here and that's kind of where I'd like to end it, because that feels like an inspiring thing for all of us who are cast about, on the waves of change right now, and struggling, amidst the turbulence of this time where do you find inspiration as a private individual, as an investor, as a leader in the sort of phase transition that we're the ever more fluid identity that we now seem to have to inhabit.

Katherine Collins (1h 1m 8s): Well, I don't think any of us having lived through this past year can legitimately cling to a true sense of control anymore. So one way or the other, we we've all felt put upon.  We've been forced to realize whether it's welcome or not that there are a whole lot of things in the world that we don't have a choice about in some ways and at some level. I think that the dark side of that experience is if you follow down that path too far, and without reflection, you start to feel like you have no choice about anything, and things are just going to be done to you and circumstances are going to arise.

And that's a terrible kind of helpless feeling. One really important element of my studies in divinity school and really gets to the root of philosophy, ministry, religion, all of it is the notion of agency. And the idea that regardless of the circumstances, in, East of Eden, it's one of my favorite novels there's this word that is puzzled over for a really good chunk of the book called timshel. And there's this debate, you know, amongst all these different characters and scholars involved in the book, what does this word really mean?

And that the debate is what the interpretation of this ancient word is. And in the end, the decision is that the word means though, mayest so it's this notion of free will that, regardless of the circumstances, there is this kernel of volition and agency that still remains, you know, how you respond to those circumstances still at some level, no matter how small is within your control. So that's kind of the extreme version, but this notion of agency, I think is the key to everything we've been talking about, which is inherently a little bit anxious at times, but full of potential.

It's the key to all of that coming together in a positive way. So I try to kind of recenter on this question for my work, but really also my life, very simple question, but it's what can you uniquely add to this situation? And there's not always an obvious answer. Sometimes I'm more self-aware than other times, so you don't always know what you can uniquely add, but to be asking that question, instead of saying, what other people expect of me, what doors have been closed to me, how can I fit through, this really narrow recipe for success that's been put in front of me to flip that around and ask this more open-ended question of what could I do that would be truly additive that no one, but me could contribute to this ideally. I asked the same question of company CEOs, you know, when they meet with a lot of sustainability oriented investors, they go through this big, long report card, you know, a hundred pages long and 80 pages of it is irrelevant and 20 pages is highly critical. And by the end, they're just like, you know what ESG and I want to hear about it.  But if you flipped around that report card version and instead ask someone who's leading an organization, which by definition is unique compared to all other organizations in one way or another, what's the coolest thing you could do.

Like you know your company better than anyone else your people, your products, your community, your customers, what is the most amazing thing that you could contribute to the world right now? I mean, that's a little out there for a question, that's a little bit Pollyannish, but oh my gosh, you'd be amazed at the answers you get. It's totally different than that report card kind of conversation. And I find that for a lot of us, our inner monologue is the report card monologue, points off for this points off for this. I'm not enough of this. I'm too much that, if you're not in that category, lucky you, but for a lot of us, there's sort of this inner report card that whether we're conscious of it or not we're comparing against, we flip that around and ask that question about potential like, oh my gosh, the things that would be possible.

So that's what I see. Again it's a reason I keep showing up SFI one researcher after another, every time I meet someone, I'm like, oh my gosh, no one else could have done this research that you just did. Like you needed this combination of like people and ideas and background all to come together. And this is a piece of research I could not find anywhere else on the planet, that is additive. And, you know, may or may not get lots of external accolades for any one publication, but that is what the world needs. And so when we talk about things like inclusion, that's why it's important.

It's not that I just want more people assembled. It's not just that I want more ideas. I want all of the additive qualities to come together. And so it links to the metrics we talked about and links to the systems we talked about. It links to all the challenges we talked about. The flip side of that challenge is that those ingredients are there. You just need to ask a different question

Michael Garfield (1h 5m 52s): That feels like a satisfying place to end this, Katherine, thank you so much for being on the show. That was really fun. Thank you.


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