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The roots of the subprime crisis

by Eric Zencey Tue Mar 11th, 2008 at 12:20:16 PM EST

The subprime mess is generally treated as a crisis, a catastrophe, one of those unpredictable pathologies that happen in our economy because the ingenuity of corporate and financial types outpaces regulatory understanding and control.  Sure, innovative self-interest will always be out ahead of regulation, as it was here.  But what the subprime mess isn't is unpredictable or pathological.  

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.


Current econmic wisdom treats phenomena like inflation, bankruptcy, and the failure of bond issuers to meet their obligations as economic pathologies: wouldn't it be nice to see an end to these things?  Maybe with good management we can cruise along without them.

But inflation, bankruptcy, and the failure of bond issuers to meet their obligations are all forms of debt repudiation, and our system has a built-in requirement for some form of debt repudiation, because it lets debt (which is a claim on future real wealth) grow faster than real wealth.  

Debt grows through the charging of interest.  In the neoclassical economic paradigm, charging interest is normal, but bankruptcy, bond failures, and inflation are not.  Paradox, huh?

Here's how the charging of compound interest leads to a need for debt repudiation.

A loan at interest is made in the expectation that the borrower will be able to pay back the loan out of increased income in the future.  If we scale that expectation up to the whole system--the economy as a whole--we can see that the obligation to pay back more than you borrowed can be met only if the economy as a whole grows by a percentage equal to the (average) interest rate.  

An example?  Say I borrow the price of a gallon of milk and promise to pay you the price of a gallon and a pint next year.  (Multiply by billions, and apply this to lots of things besides milk:  cars, houses, food, clothing, whatever you might borrow money to buy.  Which is, basically, all goods and services.)  The deal works out fine, if the economy grows enough so that where there was a gallon of milk this year there will be a gallon and a pint next year.  

What if there's insufficient growth in real wealth?  

I could repudiate the debt--simply fail to pay it.  (If I do this systematically, I'm declaring bankruptcy.)  But I can stay out of trouble if there's inflation:  if prices go up--if a gallon of milk next year costs the same as that gallon and a pint I promised to pay you--I can pay you back the price of this year's gallon and a pint in inflated dollars, which lets you buy only a gallon.  I've met my monetary obligation to you but haven't paid you the real gallon and a pint, the increased claim on real wealth that you thought the deal was going to bring you.  

Debt is a claim on future wealth--a claim on real wealth, actual things, not just "monetary wealth."   Frederick Soddy was the first to distinguish between these; he was a Nobel Laureate in Chemistry who wrote a series of books in the 1920s arguing that economic theory ignored physical reality--the reality described by the laws of thermodynamics.  As he put it:

"Debts are subject to the laws of mathematics rather than physics. Unlike wealth, which is subject to the laws of thermodynamics, debts do not rot away with old age and are not consumed in the process of living. On the contrary, they grow at so much per cent per annum, by the well known mathematical laws of simple and compound interest."
 

Soddy was dismissed as a crank for proposing remedies that fell way outside conventional wisdom in the 20s.  His five part program:

  1.  Get off the gold standard; recognize that money is an abstraction, and that we can control the amount of it in circulation.

  2.  Let exchange rates float against each other.

  3.  Use governmental budgets (deficits and surplusses) to achieve macroeconomic goals.

  4.  Collect economic data (on unemployment, consumer spending, factory orders, etc. etc.) to facilitate #3.

  5.  Stop the practice of letting banks create money through making loans at compound interest.

Notice that of the five, four are now conventional wisdom.  It's a nice lesson about how outliers -- those voices in the wilderness--are sometimes right.  And it makes you wonder if he was onto something with that fifth policy proposal.

Daly, following Soddy, explains what happens when society pits a mere convention (our practice of letting interest compound infinitely) against the physical reality of finite planet ruled by the laws of thermodynamics. Debt, he says, can theoretically grow  forever, but real physical wealth cannot, "because its physical dimension is subject to the destructive forces of entropy....Since wealth cannot continually grow as fast as debt, the one-to-one relation between the two will at some point in time be broken- i.e. there must be some repudiation or cancellation of debt. The positive feedback of compound interest must be offset by counter acting forces of debt repudiation, such as inflation, bankruptcy, or confiscatory taxation"  -- all of which are seen as pathological phenomena in economic systems.  

So:  a system that lets debt grow faster than real wealth grows is a system that needs periodic bouts of debt repudiation:  bankruptcy, inflation, failed bonds, or other financial events in which claims on real wealth are wiped out.

Within the limit implied by the rate at which real wealth can grow from year to year, this holds true:  other things being equal, anybody who "makes money" in investments at a larger rate than that has to be offset by someone in the system who loses out--who holds debt that is repudiated by inflation, bankruptcy, or other failure of investment instruments. If we hold inflation in check then the system needs more bankruptcies and bond failures.

So within this theoretical perspective--Ecological Economics, it is called--the subprime crisis is no surprise.  It stands in a series of crises over the past few decades--the Savings and Loan crisis, the Enron affair--in which vast quantities of debt were "repudiated."  That's a technical term for something that is very ugly:  people invested savings and saw those savings disappear.

One implication of this theoretical perspective is that there is a quantifiable and discoverable relationship between several variables:

Debt Repudiation = growth in debt minus real economic growth

Thus, other things being equal, we'd expect to see more bankruptcies in eras when inflation is low, and vice versa.  

Unfortunately, I haven't been able to find good data or the time to play with them in order to tease this out and demonstrate it.  It's probably a Ph.D thesis amount of work, or at least a Master's degree.  Anyone want to tackle it?

For further reading, see Herman Daly's review essay on Soddy's work, "The economonic thought of Frederick Soddy," in an academic journal, The History of Political Economy, back in 1980.  

A good short intro to the subject of thermodynamics as it relates to (and underlies and explains) economic activity can be found in Herman Daly's and Joshua Farley's textbook, Ecological Economics.  (I wrote about the book in a diary for the Daily Kos.) A paper by Cutler J. Cleveland on the history of "Biophysical Economics" covers some of the same ground and is available on the internet; see esp. pp. 5-9.  

And if you can find it through ProQuest, there's a chapter in my dissertation, "Entropy as Root Metaphor," that discusses Soddy, Daly and others as founding a new paradigm in economics.   The work is 20 years old, but the history is still accurate.  I gave a precis of that work in an article, "Some Brief Speculations on the Popularity of Entropy as Metaphor," which is available on the internet and has  a short discussion of the application of the idea of entropy to economics.

Display:
Excellent!

You can't be me, I'm taken
by Sven Triloqvist on Tue Mar 11th, 2008 at 12:48:24 PM EST
but isn't this view not too far from Friedman's neoliberal theories, which view inflation as a purely monetary phenomenon, ie that implicitly state that money cannot grow faster than real wealth?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Mar 11th, 2008 at 01:08:00 PM EST
[ Parent ]
Isn't that simply a math problem? eg MV = PT?

Friedman would see inflation as a tax more than as debt being repudiated, though, I think. And on that, I'd agree with him, one of the rare things...

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Mar 11th, 2008 at 01:12:48 PM EST
[ Parent ]
My reaction of 'excellent' was to a new way of looking at things - for me. I am not qualified in any way to compare economic theories, though I am trying to understand, and ET has been a good teacher.

'Debt repudiation' was an insight that I appreciated - it gave me something tactile to hang on to while I try to figure out the other stuff ;-)

You can't be me, I'm taken

by Sven Triloqvist on Tue Mar 11th, 2008 at 01:58:16 PM EST
[ Parent ]
Yes, I think very similar, as far as the Monetarist argument goes.  What Soddy & Daly and the perspective of Ecological Econ bring is the thermodynamic explanation; which adds quite a bit, as it leads us in new directions of theoretical explanation and understanding.  In historical terms, Soddy (and Daly and others) using thermodynamics here is more than a bit like Einstein using thermodynamics to explain black-body radiation, and in the course of that bootstrapping himself out of Newtonian physics and  into something new.  Okay, that's an extremely recondite allusion, but the point is:  the new perspective explains phenomena that were only partially visible and partially explainable in the old perspective, AND it goes on to explain other phenomena that the old perspective can't.

In this case, one "other" phenomenon is the recurrent crises in which an economy sheds debt.  "You've let money grow faster than real GDP," the Monetarists can/would/have said.  "Of course you have a problem."  But they don't talk about debt as a claim on real wealth, or how GDP doesn't measure real wealth.  (As a measure of wealth it's grossly overinflated--it counts costs as benefits, decreases in wealth as wealth.  Air pollution leads to increased lung disease; people spend money to get treated; by the measure of GDP, this is all win-win.)  Since the Monetarists are using a basic indicator that is flawed, they can't predict/explain debt repudiation crises as well as the Soddy/Daly EE model.  

If wealth as measured by GDP grows at the same rate as the claims on it (which are also imperfectly measured by increases in the money supply; debt is another kind of claim on future real wealth, a claim whose size has some relation to, but is not totally determined by, the size of the money supply), things look hunky dory.  BUT GDP is not real wealth, money is not the sum total of claims on real wealth, and the inevitable balancing of real wealth and the claims upon it comes as a surprise in the Monetarist paradigm.

I'm just sketching this out as I go along; the Q is a good one, one I haven't thought or read about before.  I don't know that anyone has tackled an answer from within EE.  

The other crucially important thing that the new, EE model makes central (and which the monetarist, or neoclassical economics, or NCE model) doesn't see at all, is the thermodynamic foundation of an economy.  An economy sucks low entropy matter and energy out of its environment, spins it around in the production "cycle" (in quotation marks because it is really a one-way flow) and spews out matter and energy that is degraded (pollution) or which must, with time and use, become degraded:  consumer items, capital.  Food.  Autos.  Solar cells.  All of it. In geologic time, all that stuff ends up thrown "away"--in a landfill or cast upon the planet somewhere.

That is, as Nicholas Georgescu Roegen put it, (I paraphrase from memory):  "considered solely as a thermodynamic system, an economy consists of nothing other than a set of human institutions, practices and conventions dedicated to taking valuable low entropy and turning it into valueless waste."   (He went on to point out that that was of course not the point of the economy, but that it existed to provide us with "an immaterial flux:  the enjoyment of life.")  

The economy has an ecological footprint on both the uptake and output sides.  The size of that footprint determines how much nature is left to go through its cycles, supplying us with ecosystem services, on which civilization crucially depends:  water purification.  Water (rainfall and storm surge) regulation.  Climate moderation (both globally and locally).  Pollination services.  Soil nutrient recycling.  Etc.  etc.  Ecological Economist Robert Costanza led a team that priced out world ecosystem services, and found that by a conservative estimate they are triple the value of world GDP.  

So, this isn't NCE monetarism, by a long shot.  

Great Q.

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Tue Mar 11th, 2008 at 02:55:57 PM EST
[ Parent ]
Bloody brilliant!

You can't be me, I'm taken
by Sven Triloqvist on Tue Mar 11th, 2008 at 06:09:56 PM EST
[ Parent ]
Great to see a less anthropomorphic economics being postulated.  Not only is Political Economy often denuded of its politics, and presented as an apolitical objective reality, but even Political Economics is centred on humanity and society and its needs without a care for its impact on the surrounding ecosystem and the exhaustion of non renewable resources and dumping grounds.  

So much conventional economics is still about gaining competitive advantage for parts of the economic world order at the expense of other parts, the ultimate zero sum game, and so little is devoted to improving sustainable capacity (or reducing unsustainable footprints) overall.  I think we probably need a new Einstein to bring economics to an entirely new level - one that explains current phenomena, but can also make a decent shot of predicting the shape of things to come.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Mar 12th, 2008 at 06:05:57 AM EST
[ Parent ]
Frank Schnittger:
I think we probably need a new Einstein to bring economics to an entirely new level - one that explains current phenomena, but can also make a decent shot of predicting the shape of things to come.
I think of Keynes ad a Galileo waiting for a Newton. Einstein is too far off.

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 Wed Mar 12th, 2008 at 06:15:17 AM EST
[ Parent ]
Perhaps Marx was the Galileo and Keynes was his Newton.  We don't have time to wait another few centuries!

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Mar 12th, 2008 at 06:58:45 AM EST
[ Parent ]
I don't think so.

There are many great intellects out there: all they need is a new set of assumptions, and off they go.

I think that on the basis of an assumption - a Metaphysics of Value - that Value is definable only in relational terms, and an understanding that "Property" and "Money" are only relationships, not Objects, then it is possible to build an entirely new Economic theory from the ground up.

IMHO Such a theory would have a good chance of making better predictions because it is, as Wheeler put it, asking the right questions of Reality.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 07:03:32 AM EST
[ Parent ]
That is easier said than done, Chris.

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 Wed Mar 12th, 2008 at 07:25:44 AM EST
[ Parent ]
What are you waiting for? ;-)

To me, it's obvious and intuitive, but I don't have the breadth of knowledge, the intellectual foundations, the language or the logical capability to explain why.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 07:34:13 AM EST
[ Parent ]
I'm waiting for "the right assumptions". I wish I understood what you're on about with "the metaphysics of value".

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 Wed Mar 12th, 2008 at 01:55:50 PM EST
[ Parent ]
Migeru:
I wish I understood what you're on about with "the metaphysics of value"

A Metaphysics of Quality is just another perspective of a

Metaphysics of Quality

You will see there, still on the front page, an old paper of mine "If not Global Capitalism, then What" from which this is an extract...

The Metaphysics Of Value

Robert Pirsig, in his books "Zen and the Art of Motorcycle Maintenance" and "Lila" sets out a case that Western civilisation has long been under the thrall of an artificial division between "Subject" and "Object".

He proposed that the primary reality is "Quality" which is both formless and indefinable. It is not a "thing" but an event at which the subject becomes aware of the object and before he distinguishes it: ie a non-intellectual awareness or "pre-intellectual reality".

Quality is the basis of both Subject and Object. The bad "Quality sensation" one gets from sitting on a hot stove leads to a consciousness both of oneself - the Subject - and the stove - the Object. Pirsig went on to distinguish between "Static" and "Dynamic" Quality, where the static order of one level forms the precondition for the establishment of a "higher" level.

The perspective I offer upon a new form of Economics more nearly related to Reality (based upon empirical observation) is based upon treating Value as a form of "Quality" as envisioned by Pirsig.

Another perspective upon Value is that of the writer E C Riegel - who in his posthumously published book on monetary matters "Flight from Inflation" - defined "Value" as " the Relativity of Desire" again implying indeterminacy. Taking Pirsig's approach Capital may be viewed as "Static" Value and Money as "Dynamic" Value.

"Transactions" are the "events" at which individuals (Subjects) interact with each other or with Capital (both as Objects) to create forms of Value and at which "Value judgments" are made based upon a "Value Unit".

The result of these Value Events or Transactions is to create Subject/Object pairings in the form of data ie Who "owns" or has rights of use in What, and - by reference to some form of Value Unit - at what Price.

This data we recognise as accounting data.
Note at this point that modern "Neo-Classical" Economics confuses indeterminate Value with a market- determined Price - a confusion best summarised by Oscar Wilde's definition of a Cynic as "someone who knows the Price of Everything and the Value of Nothing".

Data may be static such as the written word, or magnetic polarities on computer discs; or dynamic, such as the packets of energy passing between databases and defined under the "Internet Protocol".

This Data identifies the subject with objects such as tangible `Material Value' - such as Land, Commodities, Goods and Services; energy ie`Calorific Value' derived from oil, gas, and other fuels and source.

Data may itself constitute `Intellectual Value' - such as music, video, information, the written word and software and may exist in electronic or tangible form. It, too, may then be defined in a subject/object pairing through the concept of "intellectual property".

Other forms of Value are however not definable by data: who has not paid more than an object is "worth" because it has "sentimental" Value?

In particular we see:`Emotional Value' - at its most basic, the need to love and to be loved, but extending into the concept of Society; 'Spiritual Value' - who am I? Why am I here? Questions in relation to God and the relationship with the eternal.

We may therefore look at the "transaction" or "value event" in a new light. We may, for instance be prepared to exchange Material Value for the right to watch a film - Intellectual Value - from which we derive Spiritual and/or Emotional Value. As these different types of Value accumulate they form Static Value/ Capital, in Material, Intellectual or other forms. The creation and circulation of Value essentially comprises the concept we know of as "Money".

If that doesn't explain what I mean, then tough, it's my best shot: at least I know what I mean! ;-)

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 02:26:10 PM EST
[ Parent ]
ChrisCook:
at least I know what I mean!
Succesful communication would require that I think I know what you mean.

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 Wed Mar 12th, 2008 at 02:30:14 PM EST
[ Parent ]
I know, I know!

Don't shoot the piano player, he's doing his best...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 02:33:22 PM EST
[ Parent ]
ChrisCook:
A Metaphysics of Quality is just another perspective of a

Ooops !

I mean

A "Metaphysics of Value" is just another perspective of a "Metaphysics of Quality".

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 02:30:36 PM EST
[ Parent ]
Value is definable only in relational terms.  

Well, maybe not.  Everything we value has low entropy that we can make use of (though not everything that has low entropy has value for us).  

No animal can sustain itself by eating its own excrement--the excrement is a degraded, low-entropy output of the animal's life processes--though some animals (like bacteria and dung beetles) have evolved to eat the low-entropy outputs of others.  

I'm suggesting that a metaphysics of value has to account for two things:

Some values are relative.  You like pictures of Elvis painted on velvet, and I like poster-sized copies of impressionist paintings, and my friend won't stand to have any reproductions hanging in his house at all.  Each of these is "low entropy"--a bit of organized matter (not decayed pulp and faded ink or paint)--but we each value what we like, and wouldn't pay money for the other.  This is the subjective part of value, and why it's true to say that not all low entropy has value for us.  (Poisonous mushrooms are "low entropy," but they don't have value for us either.)  

But some values are objective.  Everyone prefers food that has not been eaten to food that has already passed through another person's digestive system.  A gallon of gasoline is more valuable than the exhaust, waste heat, and water vapor you produce when you burn it.  Coal is more valuable than ashes.  High grade ores are more valuable than low grade ores, and concentrated ingots of metal you can produce from them (with additional inputs of energy) are more valuable than either.  Low entropy is the physical basis of value.  

Subject, object, neatly united in one metaphysics.  

There are many great intellects out there: all they need is a new set of assumptions, and off they go.

Check out the assumptions of the emergent field of Ecological Economics.  This is the field in which you'll find Nicholas Georgescu-Roegen, whose "The Entropy Law and the Economic Process" stands as this field's equivalent to Smith's "Wealth of Nations."  It's a paradigm that accepts that economic activity is not exempt from the laws of thermodynamics; and that, in fact, in the absence of entropy, we'd have no need for a science of economics, since every good thing ever made would still exist, and we could push cars backwards to fill their gas tanks.  They don't and we can't; therefore, we experience scarcity; therefore, there's a niche for the science of thinking rationally and carefully about how to satisfy human wants with scarce means.  No entropy, no scarcity; no scarcity, no economists.  Entropy makes economists useful; it's a shame that more of them haven't returned the favor.  

My diary contains a few citations leading to more info about this field.  Minds are working in it.

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Wed Mar 12th, 2008 at 05:46:59 PM EST
[ Parent ]
Eric Zencey:
Some values are relative.

Pirsig's approach - which I follow - is that all Value (or Quality) is relative, and definable only in relative terms, by reference to criteria or benchmarks.

Your approach is to use entropy as a criterion or benchmark for Value and indeed you identify "low" entropy as valuable, as distinct from "high" entropy.

So low entropy (however defined and measured) is relatively more valuable than high entropy.

I am not familiar with this approach, but it does have appeal. Nevertheless it is an approach which requires a "Value judgment" - which may be subjective or objective.

ie yours is, again, a "Subject/Object" Metaphysics.

A "Metaphysics of Quality" (or of Value - it's the same reality being addressed)is IMHO a completely different approach, and Pirsig's work repays reading, or re-reading, in understanding it.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 12th, 2008 at 07:45:01 PM EST
[ Parent ]
It's the book that "woke me from my dogmatic slumbers," to quote Hume (I think) reading Rousseau (I think).  

And it's a very powerful, romantic story--lone wolf tracking a powerful idea, standing fast against conformity, smug self-satisfaction, and sheer hermetic wrong-headedness.  It's been an exemplar for me.

But I do think that the thermodynamic point of view has something to offer.  Not that I would replace a "labor theory of value" or a "socially constructed" (i.e. neoclassical economic, utility-based) "theory of value" with a "thermodynamic theory of value."  Low entropy doesn't capture all of what we (humans) mean by "value."  But that persepctive has a lot to show us; and one implication seems to be, that value has an irreducibly objective component.  There's simply no way that the valuation of cast metal as being more valuable than the ore from which it was made is a subjective valuation; the former has lower entropy than the latter, and low entropy is always and everywhere prized above high entropy.

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Thu Mar 13th, 2008 at 12:27:41 AM EST
[ Parent ]
As I said, your approach appeals to me, and I think that while maybe entropy is a quality, it is not   Quality itself.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Mar 13th, 2008 at 05:16:57 AM EST
[ Parent ]
Entropy is a quantity.

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 Thu Mar 13th, 2008 at 06:06:13 AM EST
[ Parent ]
ChrisCook:

So low entropy (however defined and measured) is relatively more valuable than high entropy.

I am not familiar with this approach, but it does have appeal. Nevertheless it is an approach which requires a "Value judgment" - which may be subjective or objective.

It doesn't matter whether "it has appeal" or not because it is actually the basis of energy technology.

You cannot extract all the energy out of a physical system. All you can do is extract what is called the "free energy" but which might be better called "usable energy". And the usable energy of a system is its energy content minus the temperature times its entropy content.

So low-entroy matter can be turned into high-entropy matter at a net energy gain. That is, in fact, the only way to get any energy.

Low-entropy energy from the Sun is radiated away into space as high-entropy heat. This would happen even if the Earth was a lifeless rock. Life (and the economy) feeds of this entropy flow by taking as much of the "free energy" as possible and turning it into structure rather than let it be lost as heat.

Whether things should have a value proportional to their "free energy" content is a different story, and they probably shouldn't.

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 Thu Mar 13th, 2008 at 06:05:45 AM EST
[ Parent ]
Migeru:
So low-entroy matter can be turned into high-entropy matter at a net energy gain. That is, in fact, the only way to get any energy.

Hmmm...so how does fission/fusion and e=mc squared come into it then?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Mar 13th, 2008 at 11:32:54 AM EST
[ Parent ]
Radiation has a higher entropy content than matter.

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 Thu Mar 20th, 2008 at 09:58:31 AM EST
[ Parent ]
In older (1900-ish) encyklopedias GDP is not mentioned, however national wealth is. National wealth is a term describing the amount of stuff (railroads, livestock, houses, TVs, computers) that a country has within its borders. More stuff/capita = richer. A problem with the concept (it is admitted in those encyklopedias) is that it is very hard to measure, lots of stuff would need counting.

I am guessing (and I would appreciate being corrected if I am wrong) that GDP emerged or at least became important around the time that computerised records of transactionbased taxes came into existence. Suddenly it was very easy to calculate the tax base in a society. Fun for economists who wanted to do models. And a growing tax base/capita is important as it allows politicians to serve free lunches, in way of lowering taxe rates and keeping the same service or increasing service and keeping the same taxe rates. But tax base sounds so mundane, lets call it GDP.

(Frequent readers of ET may already have read this in some other comment.)

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Mar 13th, 2008 at 03:08:32 AM EST
[ Parent ]
A swedish kind of death:
I am guessing (and I would appreciate being corrected if I am wrong) that GDP emerged or at least became important around the time that computerised records of transactionbased taxes came into existence.
GDP emerged out of the work of Simon Kuznets in the 1920's, I believe. Back then it was called National Income. In a way, from the point of view of tax base, replacing the hard to measure National Wealth with the easier to measure (transaction-based) National Income (which measures not wealth but economic activity) makes it easier to tax income than to tax wealth.
Kuznets is credited with revolutionising econometrics, and this work is credited with fueling the so-called Keynesian "revolution". An important book of his is National Income and Its Composition, 1919-1938. Published in 1941, it contains a historically significant work on Gross National Product. His work on the business cycle and disequilibrium aspects of economic growth helped launch development economics. He also studied inequality over time, and his results formed the Kuznets Curve.

...

There are two developments at Kuznets time: the emergence of econometrics and the Keynesian Revolution, both of which found in Kuznets's data an important resource for their advancement. Kuznets, however, was neither a Keynesian nor an econometrician - he took his cues from Mitchell's Institutionalism - as exemplified in his 1930 methodological pieces. Whereas Mitchell devoted his life to the study of business cycles, Kuznets turned to other fluctuations - seasonal ones and secular movements - then to national income estimation, and later to studies of economic growth. As a result, his initial work was on the empirical analysis of business cycles (1930) - a 15-20 year cycle he identified was later attached to his name, the "Kuznets Cycle".



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 Thu Mar 13th, 2008 at 05:57:50 AM EST
[ Parent ]
Thanks for the info; interesting background.  I know of Kuznets from the application of his Kuznets Curve to pollution and environmental externalities--the so called Environmental Kuznets Curve, which is used to justify the idea that development requires pollution, and that further development will lead to cleaner air, cleaner water, etc. as consumers in developed nation choose a different "mix" of goods, and when they have enough money, they choose to reduce pollution.  

The data don't bear this out; but that rarely gives a neocon pause.

I contributed to the entry on the EKC in The Encyclopedia of Earth, a gated wiki.  

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Thu Mar 13th, 2008 at 02:37:16 PM EST
[ Parent ]
The US switched off of GNP and onto GDP sometime in the eighties, I think; sorry I can't recall the date, but a quick browser search would nail it down.  My interest:  get off of GDP and onto something like the Index for Sustainable Economic Welfare.  This index corrects several flaws in GDP:

  1. GDP doesn't count draw down of natural capital as an expense item.  We lose goods and services (and the quality of life they support) when we lose natural capital.

  2.  GDP counts as benefits a lot of transactions that should be counted as costs.  You dent your car, and go get it fixed:  GDP goes up, though the accident was pure cost, not a benefit to you.  Pollution leads to lung disease, which sufferers seek treatment for:  the health care costs go into the ledger as benefits--additions to GDP--when in any sane measure they'd be counted as costs against the productive activity that produced them.

Changing from GDP to ISEW might be as simple as having a president appointing a council of Econmic Advisors who will support it.  There's no law that I know of that says we have to use GDP or GNP or any particular measure.  

And it would be great if NPR's "Marketplace" would start reporting the ISEW everytime they report on GDP.  Come to think of it, that's an idea I'll see if I can get anywhere with.

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Thu Mar 13th, 2008 at 02:43:08 PM EST
[ Parent ]
Actually you won't find a direct correlation between periods of low inflation and periods of high bankruptcies. Because debt accounting creates a time shift between the two. The debt repudiation we are about to see in the near future are the result of the low inflation of the past 10-15 years (compared to the previous 20, and even the post-war 30 years).

What you should be able to measure is a time-netted amount of inflation and debt repudiation, which only averages low for long periods. But there are actually large (and larger) swings of the pendulum. Right now we are long debt, and about to turn long inflation (past the next two years of hard but short deflation I think).

Pierre

by Pierre on Tue Mar 11th, 2008 at 01:38:12 PM EST
Okay: this stuff can make my head spin. My interest in economics lies at the foundational, theoretical level rather than in the part that translates theory into testable formulas capable of being evaluated against experience in order to make predictions.  (And I'm all for doing this; I just can't do it.)

So, Soddy's insight is about at the level of "MV = PQ" or "C + I + G = GDP".  Both of those formulae can be (infinitely?) developed, refined, tinkered.

One thing that occured to me:  if the human members of the economy exhibit an increasing preference for holding debt, then that takes up some of the mis-match between debt, on the one side, and real wealth, on the other.  A debt that is never called in doesn't come into the system as a claim on real wealth.  There are probably historically derivable formulae that describe this changing preference over time--and I'd wager that as this preference ebbs and flows, sharp declines lead to these periodic bouts of debt repudiation.  The system comes cascading down in a flurry of margin calls (which are one step in transforming debt into a claim on real wealth:  debt has to be changed into money, first, in order to be spent.)

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Tue Mar 11th, 2008 at 03:05:01 PM EST
[ Parent ]
Excellent Diary.

I think that Soddy had it right insofar as he was dealing with a "material" economy with obviously finite limits to growth if we use a "deficit-based" Money based upon claims over material wealth.

But Soddy wrote the quote you use

Unlike wealth, which is subject to the laws of thermodynamics, debts do not rot away with old age and are not consumed in the process of living

before the massive growth in the "immaterial" or "Knowledge" economy.

Intellectual Property does not "rot away" - although it may be superseded, and less valuable, it exists for ever - and therefore entropy does not apply to it.

I believe that the infinite nature of IP is the key factor (coupled with direct global connectivity) changing our Society in ways that we have yet to understand. I do not think Soddy's linear assumptions apply in respect of it, and we must therefore look down the non-linear road, and consider the relevance of Quantum Mechanics.

That is part of what I was trying to get at in this untutored ramble

Knowledge-based Value and Intellectual Property

It follows that I think that the future lies in "Smart Growth" and the better use of the finite resources we have, in  addition to a new take on the financial market infrastructure we use.

Moreover, I think that the release of the use value of IP, as opposed to physical resources that is already generating huge real economic value, and that this is only the beginning.

Bangladesh is a case in point: one of the biggest value generators in Bangladesh, which employs of the order of 250,000 people, apparently, is Grameen Phone.

This is the JV between Yunus' Grameen Bank (which funds the myriad "village phones" and the entrepreneurs who operate them) and the Norwegian Telco, Telenor.

One of the consequences of this knowledge-based generation of value is also, IMHO, the "Death of Inflation", as (infinite) knowledge largely comes to replace (finite) Labour.

The problem is that we continue to allow private Capital to accumulate the fruits of this increasingly smart growth as they have done the fruits of the growth in "material" wealth/ Capital.

IMHO the solution to this is to apply a tax/ levy upon the privilege of private "ownership" of the Commons of Knowledge, in the same way that we should do in respect of the "Commons" of Land, where Henry George got it right, but was airbrushed from economic history.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Mar 11th, 2008 at 02:41:15 PM EST
I react strongly (and negatively) whenever somebody describes Quantum Mechanics as "non-linear." Quantum Mechanics is a linear theory. In fact, linearity is axiomatic to QM.

QM is strange and interesting in a lot of ways. But non-linearity isn't one of them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Mar 11th, 2008 at 03:17:26 PM EST
[ Parent ]
I will take your word for that, Jake, and stand corrected.

But I guess what I am getting at is that the equation that applies in the economic era we are now entering is e=mc squared, where e = "economic value" and c relates to connectivity...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Mar 11th, 2008 at 03:31:03 PM EST
[ Parent ]
Then you'll probably want to look into the mathematics on neural and scale-free networks.

Migeru has some interesting ideas about analogies between thermodynamics and economics and fluid dynamics and economics.

But all of these areas are a bit far afield from my own area of expertise.

The dynamics of nonlinear differential equations might also be worth a shot (i.e. classical chaos theory - but if you google nonlinear differential equations, you'll get less pseudophilosophical crap than if you google chaos theory).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 12th, 2008 at 10:06:39 AM EST
[ Parent ]
Reaction-diffusion.

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 Wed Mar 12th, 2008 at 03:02:51 PM EST
[ Parent ]
I'm with you on a lot of this.  This diary is a cross-post from the Daily Kos, and there I replied to a comment similar to yours.  Let me see....

Ah!  Here--something I said in the Daily Kos diary in reply to the point that an information econony doesn't use a lot of matter and energy]


The limiting case is probably "information worker"--people who get a living by moving pixels around.  To do that takes some matter (the computers are made out of something) and energy (electricity, heat or AC, food), but the value added seems much larger than the physical inputs.

Some people say that services are layered atop the traditional extractive, matter-and-energy work of the economy, which never went away in a real sense.  We in the U.S. might tend to forget that, since many of the "smokestack" industries of yore have gone overseas; but we still depend on them.  We use more steel than we did three decades ago, but we make way less steel than we did then.  

...

I wrote in reply to someone in the other diary that I linked to this one that an alternative way to view factors of production is to see them in these three categories:  matter, energy, and intelligence.  Certainly products (and services, like medical services) in which a high degree of learning/design/information/knowledge is embedded have a higher value-to-matter/energy ratio that stuff like, oh, iron ore.  But just about everything partakes of all three.  Growth in the intelligence/design/knowledge part of everything will let us save matter and energy, and let us achieve efficiencies that reduce (or slow the growth in) the ecological footprint of economic activity.  

Henry George, airbrushed from history: yes.  Interesting that he was advocating a single tax on land, as the prime productive asset.  Land is the  great net by which we capture current solar income, which (eventually, I believe) we will have to learn to live within.  And some people advocate a single tax on low entropy, or on carbon:  get rid of the income tax and tax the thing that leads to externalities, the extraction of valuable matter and energy from nature.


Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Tue Mar 11th, 2008 at 03:45:46 PM EST
[ Parent ]
Eric Zencey:
Land is the  great net by which we capture current solar income, which (eventually, I believe) we will have to learn to live within.  
On living within the means of solar income, see Order of Magnitude Morality: An order of magnitude solar energy / world energy comparison
`The earth receives more energy from the sun in just one hour than the world uses in a whole year'. So, does that mean that we can convert to solar and everything is going to be fine?

No: I show that the current rate of power consumption of the `developed' world is unsustainable. The `developed' world must cut its consumption by at least a factor of 10, and must put all possible resources into developing solar energy technology, which, along with hydroelectricity, is the only* significant source of sustainable power.

* - Some conditions may apply! See below for details



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 Wed Mar 12th, 2008 at 06:23:24 AM EST
[ Parent ]
yeah, I've heard that thing about "the earth receives more energy from the sun in one day than the whole world uses in a year."  What are the assumptions behind that?  I am pretty sure that one assumption is:  the EARTH receives the solar input, and what it's compared to is the amount of energy that HUMANS use.  As in, if humans expand their niche to take more solar income, there will be less solar income for the rest of nature to use.  If we use wind power, I can imagine that we would't be stealing solar energy from other life forms.  But if we cut down forests in order to plant things (plants, solar photovoltaics) that bring solar power into our economy, we're not decreasing our ecological footprint by going solar.

Biologists say that humans are currently using 40% of the Net Primary Productivity of the planet.  That ratio  is not sustainable, and has to be--will be--reduced in the future.

I'll check out that link.

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Thu Mar 13th, 2008 at 12:15:09 AM EST
[ Parent ]
Biologists say that humans are currently using 40% of the Net Primary Productivity of the planet.  That ratio  is not sustainable, and has to be--will be--reduced in the future.

While the 40 % figure is undoubtedly true, the primary photosynthesis uses only about 2 % of the incident solar energy (and that is only over land - over ocean, the number is considerably lower). The rest is either reflected or goes straight to (mostly) unrecoverable heat (only mostly so, because it is this heat that drives the climate system - i.e. the wind and ocean currents that we can exploit for energy).

In this sense, the only difference between solar and wind is that solar taps into the greater reserve of free energy - ultimately, both wind and solar exploit the remaining 98 % of incident solar radiation. The chopping down of trees to accommodate wind farms or solar panels is thus more an issue of limited space (and the current low conversion efficiency) than limited free energy.

There are limits to the scale of any energy capture technology that we can safely deploy without changing weather patterns (irrespective of whether we are talking wind or solar), but at the moment the relatively modest conversion efficiency of the technology in question makes that a moot point.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Mar 14th, 2008 at 06:38:45 AM EST
[ Parent ]
Intellectual property can go away, if the intellectual body won't get enough food. Even information on PC hard disks, books or even stone won't necessarily last forever.

Michael Hudson wrote or talked interestingly on the history of debt. He kind of agrees with Soddy that compound interest is an evil; it was probably an important factor in destabilizing civilizations since long.

But the analogy with thermodynamics does not look very instructive to me. We have merely a miss-match between exponential math and the physical world.

Generally, to have interesting developments, you need cyclic chains of events, or possibility to return to previous states. Classical thermodynamics kind of forbids cycles in equilibrium regimes; to have dynamics back to higher entropy states you need energy input. Once cycles of events are possible, they may organize and evolve themselves in some vaguely Darwinian fashion.

It is probably more instructive to look at the modern economy not from the bottom thermodynamics, but from a deep Darwinian point of view. Surely, Darwinian methaphors are prevalent enough in economic and social settings. Once you start talking about Darwinism, a whole train of images and recognizable comprehension kicks in - most of it rather irrelevant to a particular discussion.

What I mean by deep Darwinism here is manners in which repetitive events can organize themselves. It is an alternative to stochastic and deterministic chaos understanding of complex phenomena. Instead of wondering at fractals and "butterfly effects", the logic of self-enforcement and impulsive reaction should be appreciated. The physical models (be it stochastic or deterministic) are fine, and they do provide basic cause-effect pieces. But when it comes to pondering about unstable sensitivity to initial state parameters, or stochastic thresholds, limitations of those models should be recognized. That unstable sensitivity can actually be resolved by something outside the limited model! Particular events or causal effects can appear more numerously not by physical inevitabilities but by pieces of the natural selection logic: some events allow themselves to repeat successively, some events are 'suicidal'. Could repates - "repetitive event patterns" be considered as a new kind of replicators, along with genes and memes? (Cybernetic models are quite appropriate to this understanding. )

In the modern economics, the are surely pressures and forcings from macro-economic parameters of inflation and other various growths. But no less important are how macro-economic relations developed historically, and surely, how people and institutions adapt to the 'inevitable' pressures. Events repeat themselves because predominantly only historical pulls and pushes are tried (even if dressed in new ideology clothes), and then institutions and people compete and cooperate in whatever ways... A macroeconomic pressure is not just a given condition; it can become a tool (overt or concealed) of rather intelligent, confident, though not necessarily very bright, agents here and there.

by das monde on Tue Mar 11th, 2008 at 09:37:36 PM EST
[ Parent ]
where I was able to find this: The Lost Tradition of Biblical Debt Cancellations. In my humble opinion, this document has the potential to undo centuries of damage done to Christianity and Judaism by oligarchs and usurers. Especially in the context of economic and financial developments the past year, this is really powerful material:
THE once-glowing core body of law within the Judeo-Christian Bible has become all but ignored - indeed, rejected - by the colder temper of our times. This core provided for periodic restoration of economic order by rituals of social renewal based on freedom from debt-servitude and from the loss of one's access to self-support on the land. So central to Israelite moral values was this tradition that it framed the composition of both the Old and New Testaments.

Radical as the idea of cancelling debts and restoring the population's means of subsistence seems to modern eyes, it had been a conservative tradition in Bronze Age Mesopotamia for some two millennia. What was conserved was self-sufficiency for the rural family-heads who made up the infantry as well as the productive base of Near Eastern economies. Conversely, what was radically disturbing in archaic times was the idea of unrestrained wealth-seeking. It took thousands of years for the idea of progress to become inverted, to connote freedom for the wealthy to deprive the peasantry of their lands and personal liberty.

So far has the modern idea of market efficiency and progress gone that today, although the Bible remains our civilization's defining book, it is perceived largely as a composite of stories, myth and wisdom literature best epitomized perhaps in spirituals and hymns, not economic laws. The Ten Commandments and the Golden Rule have become so dissociated from the economic legislation of Exodus, Leviticus and Deuteronomy that whoever takes these laws in earnest is considered utopian and anachronistic if looking backward nostalgically, or radical if adopting there as a guide for current activism. Yet these laws formed the take-off point for Christ upon his return to Nazareth's synagogue, and for his denunciation of the money-changers who had taken over Jerusalem's temple. As late as medieval Spain the tradition of the Jubilee Year was kept alive by Maimonides and Ibn Adret. To dismiss these laws is thus to remove much of the Bible from the context of its times, above all from its Bronze Age Near Eastern matrix.

SNIP

Bronze Age rulers had pledged themselves to serve their local sun-gods by overseeing the rhythms of nature and society, periodically "proclaiming economic order and equity." But most such rulers were unseated by classical aristocracies which used religion and its priesthoods for increasingly narrow ends. To defend popular welfare against the incursions of these aristocracies, the authors of Judaism formulated the idea of a national covenant, placing moral order in the hands of their congregations at large. This populism was the counterpart to the civil law of Athenian democracy.

Jewish populism inverted the classical hierarchies of worldly power. Although the aristocratic Pharisee element within the temples asserted its own interests throughout the Hellenistic and Roman eras, Christ sought to restore the archaic ethic by overturning the banking tables in Jerusalem's temple and preaching anew the promise of Jeremiah to proclaim equity and liberty (deror) throughout the land. Indeed, it was specifically on this principle of restoring freedom to debt-slaves and unburdening the land that Christianity elaborated its ideas of redemption. In addition to redeeming souls, early Christians redeemed their co-religionists from worldly bondage. When Handel staged the first performance of his Messiah in Dublin in 1742, it was by no coincidence that the proceeds were used to free debtors from prison. For thousands of years, redeeming men and land from debt was the primary and most concrete form of redemption.

How the Axial Age took the Bronze Age proclamations of order out of the hands of kings
As creditor claims and private property spread outside of the public temples and palaces, the policy of regularly restoring economic freedom gave way to private accumulation of wealth at odds with overall social balance. Rather than being welcomed as ushering in an epoch of economic freedom, his privatization of hitherto communal land and public industry meant a loss of freedom for much of the population.

SNIP

. . . The first five books of the Old Testament were given their final form late in the fifth century, contemporary with the high tide of Greek democracy in Athens. In 444 BC, Nehemiah, a Jewish official at Persian-dominated Babylon who had risen to the position of cupbearer under Artaxerxes, was allowed to go to Jerusalem to rebuild it. He won popular support by cancelling the debts and redistributing the lands that had been forfeited to local creditors. Making a second visit to Jerusalem, he solidified the groundwork for Ezra the scribe and his associated compilers, who reworked the Holiness Code of Leviticus into the idea of nothing less than a covenant with the Lord to promote economic justice in the land.

These Biblical redactors collated the stories of Moses recoiling against Egyptian inequity and leading the Exodus, of the conquest of Canaan behind Joshua, of the transition from judges to kings, and of the latters' backslidings which led the Lord finally to throw up his hands and let Israel and Judah be conquered by the Assyrians, Babylonians and Persians. The story of Israel's divine punishment served as a parable of how it would be rewarded for following a regime of economic justice but punished for permitting the wealthy to oppress the poor. The land was to be held in trust for the common weal, not relinquished to let the economically aggressive use it as a lever to achieve patronage over domestic clients and hence secular lordship over their countrymen (as occurred most notoriously in Rome). Unlike the case with the Bronze Age rulers who would be punished by their sun-gods for failing to promote social equity, the entire Israelite nation would suffer. Only in the modern era have these stories been decoupled from the laws concerning debt, land tenure and freedom from debt bondage that they originally were designed to wrap, and their social kernel thrown away.

SNIP

Christ's title of the Redeemer reflects the idea of saving debtors from debt-bondage. If it was their souls that he ultimately was redeeming from worldly shackles, financial power over debtors presented the ultimate test of a creditor's moral goodness. The moral is that charity toward debtors and other poor calls for forgiving their debts. Lending is put forth as the characteristic test for admission to heaven, for it is the most prevalent mode of exerting either coercive power or generosity with regard to one's fellow beings. Luke 6:35 cites Jesus' admonition to "lend, without expecting to be repaid." Centuries of commentary on this passage by medieval Churchmen elaborated how this exhortation meant that a creditor should not demand to be repaid if the debtor cannot do so without injuring himself.

Jesus drove home the conflict he felt to exist between Jewish religious values and the selfish worldliness of creditors in his famous act of overturning the banking tables in Jerusalem's temple. The story is told in all four gospels (Luke 19, Matthew 21, Mark 11 and John 2). Upon entering Jerusalem, Jesus went directly to its temple, where he overturned the benches of the moneychangers and emptied out their moneybags on the floor. He also overturned the tables of merchants selling animals, and made a scourge of cords and "drove them all out of the temple, and the sheep, and the oxen" (John 2:15). Echoing the words of Jeremiah (7:11) some four centuries earlier, he announced that "My house will be a house of prayer, but you have made it `a den of thieves."' This is the only report in the Scriptures of his using violence, and it inspired the city's leaders to plot his death.

Jesus' citation of Jeremiah was deliberately significant, for in this passage the prophet describes the Lord as threatening the Israelites not to make their land and its temples a den of thieves by oppressing aliens, orphans and widows, that is, the most seriously afflicted debtors. To prey on the weak, to monopolize the land and wealth is to seize what belongs to the Lord and his community. The relevant commandment accordingly is the Eighth: Thou shalt not steal. The great absentee landlords were stealing the land and freedom of the Israelites, and thus their destiny. Should the people fail to recall the Lord's spirit and rectify matters, they would suffer national perdition.

The Eighth Commandment in Canon Law, Lutheranism and Calvinism
Neither Hebrew, Greek nor Latin had separate words to disinguish between "interest" and "usury. " The distinction is a product o Canon Law seeking to carve out a form of financial gain (interesse that could be taken by Christians legitimately in the face of the Biblical strictures against neshek (Hebrew), tokos (Greek) and Faenus (Latin).  


by NBBooks on Wed Mar 12th, 2008 at 08:56:09 PM EST
[ Parent ]
Intellectual Property does not "rot away" - although it may be superseded, and less valuable, it exists for ever - and therefore entropy does not apply to it.

If you talk about ides, information or knowledge I am with you (though I agree with das mondes reservation).

If you on the other hand talk about the sets of legislative and limited rights - copyright, patents, trademarks, design patents and so on - that is today marketed under the term Intellectual Property I do not agree. In all of that legislation a entropy of sorts is built in, copyright has end dates (though copyrightlobby is working hard to extend it indefinately), patents run out, trademarks and design patents must be used to be upheld.

IMO, the term "Intellectual Property" is invented for the purpose of lenghtening and strenghtening these rights, which just happens to be the rights of huge western corporations in respect to just about everyone else. Now I do not think that is your purpose, it is just the econo-lingo. But I also think econo-lingo obscures your message making it harder to understand, so a well-meaning advice would be to use knowledge or ideas instead.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Mar 13th, 2008 at 02:28:40 AM EST
[ Parent ]
Wise advice, askd, and exactly right.  

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Mar 13th, 2008 at 05:09:30 AM EST
[ Parent ]
Great read... but I am sorry but I think you are quite wrong.

first, boom and boost are not necessary int he general sense (there is a huge discussion about cycles but that's antoehr topic... if you are Marxist)... and precisely the subpriem morgage is not necessary.. just look at the sapnish bank system and you see a clear example of why not.

So, some types of ups and downs of capitalism are indeed not "part of the equatio".

And regardind the secon point about making a metaphor between monetary policy and thermodyanmics to defend that there are ups and downs in general. Sorry, it is not right.

Thermodynamics, the first law is a complete uber tested theory (I know I gave classes) regarding a created entity whcih is energy whcih is conserved and that should eb defined in each system. the key point of thermodyanmics is to nbe able to identify this energy (I woudl rec Feynamn as always and the examples of the cubes in a children garden...what can I say,w e all talk about Feynman)

The reason why monetary policy can not be related with anything close to thermodynamics not even in the metaphoric sense is that the "variables" ( a key concept in tehrmodynamics) are not properly define in monetary policy.

Migeru has ptroduced some interest diaries about how you could stablish a real relation between tehrmodynamics in the metaphoric sense of "state varaibles" and "non-state varaibles". I would urge you to read them.

Summing up.. purely moentary arguemtns are compeltely wrong ing eneral, they do not reflect the presten economy and the variables are not even properly define.

Debt and growth and real economic growth can not be isolated from the different types of monetary base, and the bubble-debt phenomena. The lack of dundamental flux laws (or its equivalents) is a key problem of present economics plocies..sicne it can not allow you to stablish anything as a variable (you only eally understand a variable when you understand the flux close to equilibirum).

The fluxes of debt, money (the different types of) and the different scales of production and units (from cities, to states to group of industries) are not properly known 8though I know a bunch of people are working on it with too simple models)... therefore drivers and variables remain in a vaccuum which is esoteric.... until someone can define the itnernal variable proeprly I am afraid you are wrong.

in any case.. great read.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Mar 11th, 2008 at 03:46:32 PM EST
kcurie:
Migeru has ptroduced some interest diaries about how you could stablish a real relation between tehrmodynamics in the metaphoric sense of "state varaibles" and "non-state varaibles". I would urge you to read them.
I never wrote those diaries, but I developed the idea in comments. The idea is that nominal GDP is a "state variable" but although you can separate "nominal GDP growth" into "real GDP growth" and "inflation" any sensible definition results in "real GDP" and the "GDP deflator" (the "price level") being path-dependent. So the "nominal GDP" cannot be expressed as the product of a "real GDP" and a "GDP deflator" without reference to the history of the system.

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 04:02:17 PM EST
[ Parent ]
I thought you did finally ina diary...

uups sorry.. then comments..

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Mar 11th, 2008 at 04:45:02 PM EST
[ Parent ]
Slightly corrected quote...

kcurie:

Migeru has produced some interesting diaries about how you could establish a real relation between thermodynamics in the metaphoric sense of "state variables" and "non-state variables". I would urge you to read them.

Summing up.. purely monetary arguments are completely wrong in general, they do not reflect the present economy and the variables are not even properly defined.

Agreed, except that I think inherently "closed" "definitions" and dialectics have been the problem, and do not help in finding solutions.

That's why I felt I had to get to the Metaphysics and the assumptions underpinning Economics - because conventional Economics seemed to bear no relation to the Reality I experience.

My contention is that "Value" - whatever it is - lies, like Beauty, in the eye of the Beholder and is definable only in relative terms...

I like E C Riegel's definition of Value as the "Relativity of Desire".

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Mar 11th, 2008 at 04:11:48 PM EST
[ Parent ]
and you know I completely agree with your contention..absolutely..

I was pointing out that if a "value" of some kind or other monetary variables could be linked to a flux , it could quit this aurea of "beauty" style structure/concept.

I am not saying it is generally possible to do it. and I agree with you on that.. but I must say that some close or reductionist definition of those variables in certain conditions could be obtained. Or at least I see it possible. The problem is that no serious analysis is done..  not that I know.. the only thing that only comes close is the general analysis of international trade.. and even there when you have a bunch of possible definitions and a lot of data to construct it, well it turns out it is extremely difficult to quantify its effects on other parts of the economy. But in principle I could see a more fundamental economic theory where variables and fluxes do have to do with some economic realities (though only parcial)...

But the status of economic theory nowadays, except for some counting exception, is that it does not have any relation with Reality (as you like to say it).

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Mar 11th, 2008 at 04:53:06 PM EST
[ Parent ]
My contention is that "Value" - whatever it is - lies, like Beauty, in the eye of the Beholder and is definable only in relative terms...

To an extent. I would argue that while you are undoubtedly correct that it is nonsense to assign a universal value to such things as TVs or computers (I have no use for the former, and my grandmother has little use for the latter), there are a few things that have universal value: Shelter, clothes, food, water, air(!), heat, medicine, free time.

It seems a bit cavalier to deny the possibility of an absolute definition of value when millions are still without these very universally valuable goods.

Of course, if we define absolute value as only those items which are universally and indisputably valuable, and then try to maximise value, we would get a rather different notion of the ideal economic order.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 12th, 2008 at 10:24:12 AM EST
[ Parent ]
Glad you enjoyed the read.  "Energy" is not a metaphor when it comes to economic activity;  all economic activity involves using energy and intelligence on matter to make things or provide services.  Sometimes the energy is human (food calories).  The big explosion in economic productivity came when we learned how to use antique solar income (fossil fuels) to move matter.  Intelligence is sometimes present in the form of an adaptable worker, following the algoriths of a trade or profession, and sometimes as design intelligence built into technologies that we use.  

When energy is being used, the laws of thermodynamics apply--not as metaphor, but literally.  

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Tue Mar 11th, 2008 at 06:15:32 PM EST
[ Parent ]
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
Ok.-.. since yous tarted.. I precisely left this part out of my comment.

Tehre are some eocnomists (Marx among them if you want to call it that way) that do defend the existence of cycles..

And I am compltely with you on that.. if we talk about cylces (more growth less groth/minor recession), I think the oscialltory regime is what you should aim for and not thermodynamics. You do not need such a huge precision on the definition of "variable".. given its bifurcation theory approach where actuallyd efining precisely the variable is not "necessary".

I just did not comment on that beccause I thought it deviated from my point.

But I agree with you on that.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Mar 11th, 2008 at 05:22:29 PM EST
[ Parent ]
You spell check your diaries. Any chance you also spell check your comments? Seriously, the wya you post makes them really hard to read.

I know that makes them immediately identifiable as your comments, but it's hard-to-read!! Please?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Mar 11th, 2008 at 06:16:31 PM EST
[ Parent ]
I will do my best. Only spell check comments.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Mar 12th, 2008 at 04:00:11 AM EST
[ Parent ]
I think that compound interest represents a "positive feedback" that renders a deficit-based system inherently unstable.

There are of course interesting biological analogies, for instance, the system of financial capital as a cancer which cannot help destroying the host, and "limitation of liability" as a very good analogy for a "semi-permeable membrane" (allowing value in, but not out) bounding an organism etc etc

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Mar 11th, 2008 at 05:31:33 PM EST
[ Parent ]
Yes there is positive feedback, and there is negative feedback. They act on different timescales and therefore lead to cycles.

If you remove all the positive feedback all you have is negative feedback and you die off.

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 06:11:15 PM EST
[ Parent ]
There may be other dynamics, in addition to the imbalance of debt and real wealth, that produce "boom and bust" cycles in an economy.  

I recall that as an undergrad, years and years ago, I had a prof who reported (with a chuckle, as in "could anything be more ridiculous?") that "there is even some evidence that stock market ups and downs correspond to sunspot activity."  Hmm...  Sunspots affect solar output, which affects agriculture, which is still one of the primary ways that valuable low entropy is brought into an economy (despite the fact that there has been an historical decline in the percentage of the workforce engaged in it.  Look for that trend to be reversed as we come off peak oil and are forced to practice sustainable agriculture.)  

Interesting analogue:  

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.
 

Imagine if the predator population (representing claims on future population of prey) can grow exponentially, because they are (like debt) incorporeal abstractions.  The boom and bust cycles could then easily become large enough in oscillation to threaten not only the dynamic equilibrium implied by the sinusoidal chart, but the continuation of the system as a whole, through the removal of the prey species entirely.

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Tue Mar 11th, 2008 at 06:35:22 PM EST
[ Parent ]
Eric Zencey:
I recall that as an undergrad, years and years ago, I had a prof who reported (with a chuckle, as in "could anything be more ridiculous?") that "there is even some evidence that stock market ups and downs correspond to sunspot activity."  Hmm...  Sunspots affect solar output, which affects agriculture, which is still one of the primary ways that valuable low entropy is brought into an economy (despite the fact that there has been an historical decline in the percentage of the workforce engaged in it.  Look for that trend to be reversed as we come off peak oil and are forced to practice sustainable agriculture.)
This reminds me of stochastic resonance. There need be no more than a very small effect of the sunspot cycle on economic activity, but since the sunspot cycle is (quasi)periodic it might be able to resonate with the nonlinear oscillator that is the economic system and get amplified in the response.
Strictly speaking, stochastic resonance occurs in bistable systems, when a small periodic (sinusoidal) force is applied together with a large wide band stochastic force (noise). The system response is driven by the combination of the two forces that compete/cooperate to make the system switch between the two stable states. The degree of order is related to the amount of periodic function that it shows in the system response. When the periodic force is chosen small enough in order to not make the system response switch, the presence of a non-negligible noise is required for it to happen. When the noise is small very few switches occur, mainly at random with no significant periodicity in the system response. When the noise is very strong a large number of switches occur for each period of the sinusoid and the system response does not show remarkable periodicity. Quite surprisingly, between these two conditions, there exists an optimal value of the noise that cooperatively concurs with the periodic forcing in order to make almost exactly one switch per period (a maximum in the signal-to-noise ratio).

Such a favorable condition is quantitatively determined by the matching of two time scales: the period of the sinusoid (the deterministic time scale) and the Kramers rate (i.e. the inverse of the average switch rate induced by the sole noise: the stochastic time scale). Thus the term "stochastic resonance".

Stochastic resonance was discovered and proposed for the first time in 1981 to explain the periodic recurrence of ice ages.[1] Since then the same principle has been applied in a wide variety of systems. Nowadays stochastic resonance is commonly invoked when noise and nonlinearity concur to determine an increase of order in the system response.



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 07:01:56 PM EST
[ Parent ]
There is some interesting research on Mother Nature forcing social-economic regimes...

African recessions lead to democratic concessions

In Sub-Saharan Africa, periods of low rainfall often lead to economic downturns. And economic downturns, in turn, lead to the toppling of autocracies.

At least, such is the theory put forth in a summary of a new paper by economists Marcus Bruckner and Antonio Ciccone, "Rain and the Democratic Window of Opportunity."

In his synopsis, Ciccone writes that "Four out of five Sub-Saharan African countries were autocracies in 1980, but twenty-five years later there were more democracies than autocracies." He then references the work of economists of Darin Acemoglu and James Robinson:

They show that democratization becomes more likely after transitory, negative shocks. These shocks give rise to a window of opportunity for citizens to contest power, as the cost of fighting ruling autocratic regimes is relatively low. When citizens reject policy changes that are easy to renege upon once the window of opportunity closes, autocratic regimes must make democratic concessions to avoid costly repression.

So what's most likely to cause a transitory negative shock in the agricultural-based economies of sub-Saharan Africa?

Drought.

In our sample, a 50 percent drop in rainfall reduces real income per capita by around 4 percent relative to trend. Putting the two pieces of the puzzle -- the effect of low rainfall on income per capita and its effect on the probability of a transition from autocracy to democracy -- together yields that a drought-driven recession that decreases income by 5 percent relative to trend raises the probability of democratization by around 7 percentage points.

Thus, the recent history of Sub-Saharan Africa provides empirical support for the idea that economic recessions put autocratic regimes in a position where they have no choice but to make democratic concessions.

by das monde on Tue Mar 11th, 2008 at 08:28:18 PM EST
[ Parent ]
Interesting!

So to support democracy, we should root for "transitory, negative shocks"?  

Doesn't seem right, somehow.  But I can see how it would work:  when times are bad, contesting the existing power arrangement has a lower cost, as your quote from Ciccione says. (This reminds me of a dynamic in gorilla troops:  low-status males, with little to lose, apparently behave in ways that destabilize the troop hierachy.  Destabilization behavior includes soliciting attacks from neighboring competitive/antagonistic troops.)  

But the dynamic that Ciccione describes is seen only in autocratic systems, in which the negative (social, political, economic) effects of the transitory negative shock are interpreted in ways that delegitimize the extant regime and lead toward democratization.  If the extant regime is democratic, the transient, negative shock may lead to greater autocracy--as, arguably, happened in the US in the wake of 9-ll.  

Really, we shouldn't trust economists to do poliical theory.


Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Wed Mar 12th, 2008 at 12:32:52 AM EST
[ Parent ]
Since Naomi Klein's "Shock Doctrine", we will never miss coincidences of social and economic shocks and political regime changes!

"Natural" dynamics is important and interesting, but at some point "information" dynamics comes into the picture. The reason why financial-corporate-political elites and Friedmannians are so keen and successful with shock-and-wave therapies, is that they know what they want to do. While everyone else is clueless under a shock, they have a plan to implement their agenda.

In sub-Saharan Africa, both autocratic elites and the population may look relatively clueless, and that hurts the elites more. I guess that if the elites would educate themselves at Chicago University, they could be impressively successful in thriving through all climate  and agricultural regimes.

But "nice" political and social parties could probably learn to counter ruthless profiteering from bad shocks and busts, or even start winning over dirty nobilities. Amiable democracy seems helpless now, but mostly because of rather tremendous and diligent efforts of power elites to subvert democracy and regular aspirations. What is needed, is knowledge and determination of what has to be achieved through turmoil times.

In nature, I think that turmoil times (call it equilibrium punctuations, regime shifts, or environmental transitions) generally favor 'niceness' over cutthroat aggression; as cutthroat "dog-eat-dog" competition destroys itself, chances for relaxed and symbiotic relations arise. Similarly, if civilization would collapse in generally uncontrolled fashion, that would hurt autocratic and totalitarian structures a lot, while self-governing and local cooperation would be discovered as best mean to get through, I guess.

by das monde on Wed Mar 12th, 2008 at 03:14:21 AM EST
[ Parent ]
Amartya Sen has argued that authoritarian regimes exacerbate the impact of negative shocks.
His views encouraged policy makers to pay attention not only to alleviating immediate suffering but also to finding ways to replace the lost income of the poor, as, for example, through public-works projects, and to maintain stable prices for food. A vigorous defender of political freedom, Sen believed that famines do not occur in functioning democracies because their leaders must be more responsive to the demands of the citizens. In order for economic growth to be achieved, he argued, social reforms, such as improvements in education and public health, must precede economic reform.


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 Wed Mar 12th, 2008 at 04:39:47 AM EST
[ Parent ]
thinking about your sig....the difference between industrious and industrial...

industry
c.1477, "cleverness, skill," from O.Fr. industrie, from L. industria "diligence," fem. of industrius "industrious, diligent," used as a noun, from early L. indostruus "diligent," from indu "in, within" + stem of struere "to build" (see structure). Sense of "diligence, effort" is from 1531; meaning "trade or manufacture" first recorded 1566; that of "systematic work" is 1611. Industrial (1774) and industrialize (1882) both on Fr. models. Industrial as a style of dance music dates from 1988. Industrious "characterized by energy, effort, attention" (1552) retains the etymological sense.

are hedge funders 'industrious'?

i wonder when the use of the term 'industrial' began. an industrious community suddenly became an industrial one, why?

more dust? bigger machines?

a hedge fund has (had) the value of what? making someone profiting off it happier? any others?

a subprime mortgage gets someone into a bigger house than they can financially maintain, at whose cost? the chinese who sweat for pennies, so international corporations can sell shares, to pension funds which can tank when the house of cards blows over, and joe blow's retirement goes south?

so much of the 'economy' seems based on promises, in an increasingly unstable world, (was it ever any other way?). trust that gets incrementally ramped up, leveraged by being 'vouched' for by 'responsible' overseers (yeah right)...

vouch |vou ch |
verb [ intrans. ] ( vouch for)
assert or confirm as a result of one's own experience that something is true or accurately so described : they say New York is the city that never sleeps, and I can certainly vouch for that.
* confirm that someone is who they say they are or that they are of good character : he was refused entrance until someone could vouch for him.
ORIGIN Middle English (as a legal term in the sense [summon (a person) to court to prove title to property] ): from Old French voucher `summon,' based on Latin vocare `to call.'

vouching their way further and further out on a limb of_hope_ sold as probability....

financial services have cushioned and comforted many an old age, but does it follow that a global casino mentality is a good one, especially if run by cunning thieves?

the sooner we come up with a recyclable alternative to this deeply flawed system, more tied to reality, (cf. chris cook), the better.

one that trusts that the sun will shine and the tides and wind come in, not untransparent, unregulated flyboys milking the present and destroying the future.

i saw a pretty good australian flick about this last night, called 'the bank, enemy no. 1'. it was about a mathematician who came up with some software to predict stock market crashes. he starts off idealistic, and his boss, a gordon gecko-on-steroids type is superbly cast, a human reptile. i won't spoil it...

anyone see it?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Mar 12th, 2008 at 10:07:08 AM EST
[ Parent ]
I think industrious culture became industrial culture when a couple of things happened:

  1. Fewer and fewer of the workforce was engaged in agriculture, thanks to mechanization and industrial methods being applied on the farm;

  2.  We (humans) learned how to systematically use past solar income--fossil fuels--to accomplish present work.

Industrial culture could be sustainable, if we can find a way to run it on current solar income.  Current solar income will probably support way fewer humans than we have now, if we want anything like our current (even our current world-average) standard of material well being.  

Industrial society is not sustainable. Unsustainable systems change--or disappear.
by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Wed Mar 12th, 2008 at 05:55:30 PM EST
[ Parent ]
Eric Zencey:
Imagine if the predator population (representing claims on future population of prey) can grow exponentially, because they are (like debt) incorporeal abstractions.  The boom and bust cycles could then easily become large enough in oscillation to threaten not only the dynamic equilibrium implied by the sinusoidal chart, but the continuation of the system as a whole, through the removal of the prey species entirely.
Being incorporeal debt can just as well be repudiated as created.

I don't see credit as all that different from "other dynamics producing 'boom-bust' cycles in the economy".

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 Wed Mar 12th, 2008 at 05:37:46 AM EST
[ Parent ]
I mentioned a specific dynamical system and a specific class of chemical reactions. Maybe you could walk over to the Chemistry department and ask to see an oscillating chemical reaction. (Follow the link to see some pretty pictures of spontaneous structure formation in oscillating chemical reactions).

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 Thu Mar 13th, 2008 at 09:10:20 AM EST
[ Parent ]
European Tribune - The roots of the subprime crisis
The subprime mess is generally treated as a crisis, a catastrophe, one of those unpredictable pathologies that happen in our economy because the ingenuity of corporate and financial types outpaces regulatory understanding and control.  Sure, innovative self-interest will always be out ahead of regulation, as it was here.  But what the subprime mess isn't is unpredictable or pathological.  
It is not pathological, but that doesn't make it predictable. It is expected, but not unpredictable. Like an earthquake.

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 05:01:50 PM EST
Like earthquakes:  they were almost total mysteries before the advent of the plate tectonic theory in geology in the 1970s.  Now we understand more about crustal movements and subduction zones and the resulting earthquakes.  Earthquakes can't be predicted with precision, no, but seismologists can make predictions like "there's an x percent chance of a earthquake of such-and-such magnitude somewhere on this fault line in the next y years."  What they're measuring is the movement of crustal plates, the consquent amount of energy that will eventually be discharged in movement, the known or estimated plasticity of the relevant rock strata, etc.  So:  predictable, yes and no.  

I guess a lot depends on the level of confidence that holders of debt have--and they tend to react like a flighty herd of herbivores sometimes, ready to run for other parts when they sniff the odor of debt repudiation on the breeze.

We measure "consumer confidence."  Why not measure "creditor confidence"?  Just to offer another project that this paradigm implies.

Industrial society is not sustainable. Unsustainable systems change--or disappear.

by Eric Zencey (Eric dot Zencey at UVM dot EDU) on Tue Mar 11th, 2008 at 06:46:35 PM EST
[ Parent ]
The unpredictability of earthquakes has no longer anything to do with not knowing the mechanism.

I'm just pointing out the important difference between prediction and expectation. Chaotic systems are deterministic yet unpredictable. That doesn't mean their statistical properties cannot be studied in detail.

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 07:04:51 PM EST
[ Parent ]
great discussion...thanks all, especially eric for tying entropy and economics together and presenting it to us.

i remember reading rifkin on entropy back in the mid eighties(?), and there were more than a few 'aha' moments.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Mar 13th, 2008 at 08:36:38 AM EST


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