Increasing the money supply and the number of transactions will, in the long run, lead only to rising prices if it is not met with greater aggregate wealth.  In the short run, it can help the the "little guy" -- e.g., the debtor -- but only in the short run.

Be nice to America. Or we'll bring democracy to your country.

I guess that economic crises are good for wealth condensation, but FDR-type "New Deals" not so good ;-)

way above my head, as was much of the more mathematical content in Migeru's diary

What I wrote in my earlier diary is analogous to the kind of qualitative thermodynamic models physicists made around 1900 (I mentioned specifically the Van der Waals equation of state for fluids). These are purely qualitative, macroscopic models.

In the mid-20th century a lot of microscopic models were studied using a technique called mean field theory. This was a half-way house in which individual particles were considered, but each of them was only the average effect of all the others. These models were more successful qualitatively but quantitatively were not borne out by experiment near the so-called critical points (there is a very inadequate article over at Wikipedia --- I'm going to have to go and rewrite it).

There were two empirical facts that made critical points remarkable:

• the relationships between measurable quantities could be expressed as power laws near the critical point
  
• very different physical systems exhibited the same power laws (with the same accurately measured exponents)

• scale invariance: the power laws observed in the vicinity of a critical point indicate that, at the critical point, the system under consideration becomes perfecly scale-invariant. [This is a subtle mathematical/geometrical insight that I can't do justice to here]
  
• universality: the fact that the same numerical exponents were observed across very different physical systems led to the discovery of universality classes. It turns out that, depending on the dimensionality of what is called the order parameter and the dimensionality of the space on which the system lives, thermodynamical systems fall into specific universality classes with the same qualitative behaviour. In other words, close to the critical point the behaviour of a macroscopic material is independent of its microscopic details, not only qualitatively but also quantitatively.
  

Then in the 1980's it was realized that, when a system is far from equilibrium, it tends to arrange itself into a "critical state", where "critical" here just means that various quantities of interest follow power laws as in the classical critical points. Unlike the traditional critical points of equilibrium thermodynamics, which were highly unstable and delicate, these dynamical critical points were stable. Because the power laws indicate that there is structure at all scales, from the smallest to the largest, these critical points appear highly organized, and because of the stability they arise spontaneously in the right conditions. This led to the idea that systems out of equilibrium self-organize into a critical state. Because of universality, the microscopic details of the system should be largely irrelevant.

And what does this have to do with social sciences? Well, Pareto's law of income, or Zipf's law, or the distribution of the size of towns in a country..., all follow power laws. It is very easy for a physicist to jump to the conclusion thet self-organized criticality is at work. What is hard is to exhibit it through a specific quantitative model. What makes things a little easier is universality: to a large extent the microscopic details of the model don't matter.

The point to take home from all of this is that there is a very different paradigm in Physics right now from the mechanistic world of the 19th century that economists sometimes try to imitate. 21st century physics is hosptable to life where 19th century physics was bleak and lifeless. This new paradigm accommodates an evolving universe in which organization arises spontaneously and increases continuously, which is very different from the bleak heat-death of the universe view of the world we inherited from 19th-century physics. Also, the mechanistic clockwork universe of Newton and Laplace has been replaced by the  unpredictable (and organized) world of chaos and "strange" attractors (this world is still deterministic, but unpredictable and so not mechanistic).

Now I really need to go write a diary about this.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan