ECONOMICS, PHYSICS, AND THE RECENT FINANCIAL MELTDOWNApril 7, 2012
Readers of my books, and in particular, Babylon's Banksters, will know of my fascination for the field of "econophysics," the field of economics as modeled by physicists who entered that discipline ca. the early 1980s, using their techniques of modeling in quantum mechanics and applying them to economic systems. IN my researches over the years, one of the things that has repeatedly stuck out like a sore thumb to me in reading ancient texts and studying ancient monuments from the point of view of an engineer or physicist (and I am neither by the way), is the persistent presence in those texts and structures of feedback loops organized in complex systems. Well, with that in mind, here's an oldie (two years old) but a goodie:
One of the things that immediately leaped out at me were these paragraphs:
"In spring 2008, long before Lehmann Brothers defaulted, socio-physicist Dirk Helbing with colleagues James Breiding and Markus Christen were pointing out that the financial system had undergone changes that made it inherently unstable. Using the theory of complex systems, they argued that most analyses of the financial and economic system were too simple-minded, as they underestimate the importance of feedback loops and cascading effects. Things played out much as they predicted. A few months later, the financial system would have collapsed, had the European central bank and the Federal Reserve in the US not taken bold measures to provide exceptional amounts of liquidity.
"Econophysicists agree, but also think that this is just aesthetic surgery. They claim that the pillars on which economic theory is built are fundamentally flawed. In a recent letter to George Soros, they point out that, in contrast to what mainstream economics says, markets are not stable, efficient, and self-regulating by nature, but would tend to stray far from equilibrium (as bubbles and crashes illustrate). Their models -- inspired by years of success in understanding the rich dynamics of many physical systems -- explain extreme events such as financial crises as emerging naturally through interactions and feedbacks among market participants. Upheavals in financial markets, these models suggest, should be almost as difficult to respond to as earthquakes, unless the structure of today's market interactions is changed."
Feedback loops, non-equilibrium systems...I was reminded of the systems kinetics model of the Brusselator and the pioneering work on non-equilibrium thermodynamics of Ilya Prigogine. These, the article is implying, are the models and concepts being successfully used by econophysicists to predict various bubbles and bursts.
Notably, this was disclosed in a letter to George Soros, indicating something else I had written about in Babylon's Banksters, namely, the close, though largely hidden, relationship between systems of finance and systems of physics, a relationship that, in my opinion, goes back millennia and can be attested by the relationship between ancient temples, their astronomical and astrological significance, and their close relationship with money-changing. In that respect it is significant that the article concludes by observing that Soros, in response to the letter, founded the Institute of New Economic Thinking (INET) with a substantial endowment to advance understanding of the new models in relationship to that favored meme of the corporate financial elite: "sustainability." In short, nothing has changed in the millennia, except perhaps the mathematical precision with which such things are now being modeled.
...and for those readers who read Babylon's Banksters, we are still a far cry away from that grand socio-economic-physical unification that was attempted by Edward Dewey and his Foundation for the Study of Cycles. Those readers will also recall that some of Dewey's cycles, as outlined in that book, would enter a period of profound economic downturn...ca. 2008...
See you on the flip side....