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Post by agito on Nov 16, 2008 20:54:39 GMT -6
i've been kicking an idea around in my head about the force(s) of entropy in a dynamic situation such as an economic society, and in my cursory research i found this- bayes.wustl.edu/etj/articles/entropy.in.economics.pdf nifty! has anyone here read this and have any thoughts about it? BTW- my idea is that with each transaction, Demand is met and effectively annihilated. So every sale means Demand shrinks- representing a force of entropy in the system.
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Post by agito on Nov 17, 2008 16:19:37 GMT -6
must be monday- noone's very cerebral today huh?
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Post by judes on Nov 17, 2008 16:23:46 GMT -6
I skimmed through it, it sounds interesting. I just don't know how practical in application it would be, there seems to be an infinite number of input variables. Maybe you could expound on it a bit?
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Post by unlawflcombatnt on Nov 17, 2008 16:58:56 GMT -6
I skimmed through it as well.
"As we read in the newspapers, both Keynesian and Monetarist economic theories have been unsuccessful in accounting for recent economic behavior. Neither can point to particularly great past successes from adoption of their policies by Government, and { if we can believe the press neither seems to have any clear idea of what Government should be doing now.}"
At the outset, I disagree with this statement in regards to Keynesian economic theories. In fact, the Keynesian model of macroeconomics is being well validated in today's world.
The lack of aggregate demand is what is bringing the world economy down. The end result of the credit crisis is that it is reducing the aggregate demand that was created by easy credit, forcing us to rely solely on already deficient income-funded demand. World economies have been propped up by the artificial wealth creation and spending power from easy credit and borrowing. Now this debt-fueled demand is collapsing, which had obscured the already deficient income-financed demand.
The collapse from the fall in both debt-financed and income-financed demand is completely consistent with Keynesian economics.
"Today, it appears that the real world of economics might not be describable merely in terms of conventional macroeconomic variables (unemployment rate, GNP, aggregate demand, etc.) If so, then a conceptual innovation is called for. So what is the missing factor?"
No, the problem is the deliberate misinterpretation, distortion, and mislabeling of some of these variables and concepts, such as "Keynesianism." Giving money to rich bankers in the hope that it will trickle down is not Keynesian in any way, shape, or form. Priming the pump from the top in this manner is more like a kind of a pseudo-Supply Side policy. (It's not really supply-side either, but it's in that direction.)
I don't think we need a new paradigm. I think we need to review the ones we already have, and stop trying to misapply them to comply with the interests of rich financiers and Right-Wing think tanks.
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Post by agito on Nov 17, 2008 21:00:54 GMT -6
I should point out that the article was written in 1991, so it was referring to a crisis of a different sort. (tangent- the crisis of 1991 was what? the end of the cold war combined with less government spending? what was the cost of that economic crisis? )
here's a passage that grabbed me:
in short- the economic system isn't jsut a game of levers where money moves around in a circle, it's a natural system that is ultimately devolving- like a sun that burns through it's energy.
they go on:
I agree with you, UnLC, about the authors coming to the wrong conclusion that the economic crisis proved keynesian theory wrong. And that's why i'm focusing on this- what if there is an entropic force in the economic system, only it's the entropy of demand, which these authors themselves overlooked?
If you think about it- it would actually become another argument in the arsenal of keynesian theory because keynesian spending would directly combat the economic entropy- the problem is that there has to be a way to quantify it.
Lets go back to the sun analogy- imagine that as the hydrogen burned and formed He, there was a contraption that took the He, used the suns energy (and maybe other sources) and changed it back into H- feeding it back into the star. the laws of thermodynamics state you can't do this forever- but you could multiply the length of the stars lifecycle.
Similarly, keynesian spending would offset the entropic forces of the business cycle- making the business cycle last longer, but since it isn't subject to the laws of thermodynamics, it could feasibly be put off forever.
they go on to explore the relationship between bubble economies and entropy... have to come back to that later- wanted to get this posted.
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Ted
Contributor
Posts: 18
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Post by Ted on Nov 18, 2008 14:37:32 GMT -6
I've never seen that study before but I've often contemplated the role that entropy plays in economics. It would seem to me that only the continuing creation of real wealth can offset the limitations imposed by entropy. I would suggest that demand for real wealth is constant if one defines real wealth as the primary requisite for sustenance of human life. By that measure, demand increases proportionally with population growth and exponentially when population concentrates. The type of crisis we are currently experiencing is, I would speculate, caused by entropic decrease of real wealth through consumption without replacement. The inflationary spiral that culminates in the type of rapid deflation that we are seeing is caused by stratification of the real wealth required to sustain life- a trend that we typically describe as upward redistribution of income. Such stratification tends to mask the obvious entropic loss of energy (real wealth) that is inherent in the result of a shift from an agricultural/industrial production base to the current "cloud" based transactional model (the term "cloud" borrowed from the tech sector that increasingly seeks to deliver their "product" on a parasitical subscription model as opposed to the transfer of ownership implicit it the act of consummating a one-time sales transaction- i.e. transfer of ownership).
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