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European Tribune - The roots of the subprime crisis
When you understand the thermodynamic roots of economic life, and when you understand how our financial system flouts thermodynamic law, you can see that regular crises like these are a structural requirement of our system.
This is interesting, but I think boom-bust cycles are an expected feature and not a consequence of the financial system "flouting thermodynamics".

To see this, consider the Lotka-Volterra equations as a model of consumption of a renewable resource: the "predator" is the economy and the "prey" or "food" is the renewable resource.
In the model system, the predators thrive when there are plentiful prey but, ultimately, outstrip their food supply and decline. As the predator population is low the prey population will increase again. These dynamics continue in a cycle of growth and decline.
I fail to see how the Lotka-Volterra system "flouts thermodynamics". Maybe you can argue that the problem is that the predators are "blind" to thermodynamics, but unless the predators precisely manage their fertility and their hunting quite carefully there will be boom-bust cycles, and even a stable system will start oscillating in response to an external shock.

Another useful analogy of the economic system is oscillating chemical reactions

The reactions are theoretically important in that they show that chemical reactions do not have to be dominated by equilibrium thermodynamic behavior. These reactions are far from equilibrium and remain so for a significant length of time. In this sense, they provide an interesting chemical model of nonequilibrium biological phenomena, and the mathematical model of the BZ reactions themselves are of theoretical interest.

An essential aspect of the BZ reaction is its so called "excitability"- under the influence of stimuli, patterns develop in what would otherwise be a perfectly quiescent medium. Some clock reactions such as Briggs-Rauscher and BZ using the chemical ruthenium bipyridyl as catalyst can be excited into self-organising activity through the influence of light.

For "nonequilibrium biological phenomena" read "economic phenomena".

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris
by Carrie (migeru at eurotrib dot com) on Tue Mar 11th, 2008 at 04:58:33 PM EST

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