The Physics of Wall Street: a brief History of Predicting the Unpredictable

A New Manhattan Project 
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and interests to present a new approach to understanding economic 
theory.
Weinstein visited Perimeter in May of 2006. He gave a talk on the 
way in which gauge-theoretic ideas could be important in a new eco-
nomic theory, presenting the work he and Malaney had done some 
years before. And then he left. Smolin and others at the institute found 
Weinstein’s ideas compelling. But they were inclined to be sympa-
thetic. these were not the people who needed to be convinced.
Weinstein and Smolin remained in contact, however. Smolin visited 
Weinstein in new York, where he met Malaney and their children. He 
began to study some basic economics, trying to gain a deeper under-
standing of the ideas Weinstein described. And the more time he spent 
with Weinstein, the more interested he became. Smolin describes 
Weinstein as an intellectual force, a creative thinker with remarkable 
intellectual range, whose conversation would regularly extend to top-
ics as disparate as evolutionary biology and natural selection, contem-
porary mathematics, and nineteenth-century physics.
In September of 2008, Weinstein visited Perimeter a second time, for 
a conference on science in the twenty-first century. the talks focused 
on ways in which scientific research was changing with new funding 
sources, with new means of disseminating ideas, such as blogs and on-
line conferences, and with new ideas about where research should and 
could happen, with places like Perimeter and the Santa fe Institute 
becoming centers of study outside of the traditional university.
But the future of science was not at the forefront of Weinstein’s mind 
that September. Just a week after Weinstein’s talk at Perimeter, the 
fourth-largest investment bank in the United States, Lehman Broth-
ers, closed its doors after a century and a half of business. At virtually 
the same time, AIG, one of the twenty largest publicly traded compa-
nies in the world, had its debt downgraded, leading to a liquidity crisis 
that would have toppled the company had the U.S. government not 
intervened. In early September, the world economy was already on the 
ropes. As a hedge fund manager and consultant, Weinstein was tuned 
in to the surprise and panic in the financial industry, and in economics 
more generally. As far as Weinstein knew, no one had seen this com-
ing. (Sornette had, but he didn’t publicize this prediction widely.)

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 for Weinstein, the unexpectedly dramatic failure of the U.S. bank-
ing system was only further evidence that it was time to take the next 
step in the development of modern economics. It was time to reflect 
on what had gone wrong with the now-toxic securities and recognize 
that economics needed a new set of tools. As physicists had done a 
generation before, economists needed to broaden their theoretical 
framework to account for a wider variety of phenomena. economics 
needed a new generation of theories and models, suited for the com-
plexity of the modern world. Weinstein thought that the crisis should 
be an opportunity to set aside past differences between the various 
approaches to finance and economics. He called for a new large-scale 
collaboration between economists and researchers from physics and 
other fields. It would be, he said, an economic Manhattan Project.
Social Security, technically the U.S. federal old-Age, Survivors, and 
disability Insurance program, was first signed into law in 1935 as part 
of the new deal, franklin roosevelt’s program to end the Great de-
pression through stimulus spending and a broad expansion of the 
U.S. welfare system. It was a way for the federal government to pro-
vide support to the elderly, to children whose parents had died before 
they were of employable age, and to people who became disabled and 
unable to work. It was designed to pay for itself, as a real insurance 
program would. Workers would contribute to the program through a 
mandatory tax, and the funds collected would be used to pay for the 
program’s costs.
the program was highly controversial. early on, it was challenged 
several times in the Supreme court (unsuccessfully). But over time, as 
successive generations contributed during the course of their working 
lives, most Americans came to count on the program as a retirement 
and disability benefit. By the 1960s, it had become a part of Ameri-
can life, something that workers nearing retirement took as an entitle-
ment. this made matters politically difficult when, during the period 
of high rates of inflation and low economic growth in the 1970s, it 
became clear that Social Security was in trouble. Projecting forward, 
politicians and economists realized that over the coming decades, 
ever-larger numbers of aging Baby Boomers (then just coming into 
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t h e p h y s i c s o f wa l l s t r e e t

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