Saturday, July 21, 2012

The Economy as Dissipative Structure

A good example of a self-organizing system on the borderland of order and chaos (which is the realm of criticality, or far-from-equilibrium state) is a hurricane. Anyone who has experienced a hurricane has the feeling that the ocean is coming onto the land from the sky. That is because the ordered part of the hurricane is the ocean; the chaotic part of the hurricane is the atmosphere. The hurricane gains order as heat-energy enters the hurricane from the ocean, and it dissipates that energy by shedding bands of rainclouds. In fact, if the hurricane is shedding its outer bands of rainclouds, that means the hurricane is strengthening. This is what one expects from what are known as dissipative structures, of which self-organizing systems, including hurricanes, are types.

Dissipative structures have to dissipate parts of themselves to maintain their structures. A self-organizing system is thus a species of dissipative structure. To have self-organization, you have to have energy in, processing, and energy out.

An economy is a self-organizing system, or spontaneous order. To have a strong economy, you have to have energy in, processing, and energy out. This can of course be literal energy, such as electricity, which is turned into work. A product and heat are the outcomes. To create the product, you have to transform the energy into work and dissipate heat -- in other words, increase entropy. We can understand other elements of the economy much better if we understand the economy as a dissipative structure. Particularly if we look at it like a hurricane. A strong economy is thus one which sheds off its "outer bands" as it strengthens. "New energy," such a the creation of new technologies, enters the system, resulting in "old energy," such as old technologies the new ones replace, being shed. If you prevent the energy from dissipating, you don't get a stronger system -- you get weakening and, eventually, system collapse. Thus efforts to protect old technologies from newer ones will weaken the economy.

All such efforts at protectionism are thus system-weakening. This includes jobs. As an economy creates new kinds of jobs, one would expect it to dissipate whatever older jobs it can dissipate (this is known as outsourcing). If one were to protect people from losing those older jobs, the result would be a weakening of the economy overall. This is a problem of the seen vs. the unseen. It is easy to see the failing business, the disappearing technology, or the lost job. It is harder to see the new business, the new technology, or the new job. But it is because of the latter that the former happens. And if you prevent the former from taking place, you actually make it more and more difficult for more energy, for new things to enter into the system. This harms everyone over the long term, including those you are "helping" over the short term.

It is only by understanding the true nature of the economy, as a self-organizing, dissipative structure, that we can come to really see and understand these things. There are unintended consequences to well-intentioned protectionist actions precisely because the economy's structure is not properly understood.
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