The Economy Is Subject to the Same Rules of Nature as Everything Else

In this interesting op-ed theoretical physicist Mark Buchanan argues that Economists Have a Lot to Learn From the Weather. I could not agree more.

He makes the case that most modern economists dismiss the inherent instability of economy. That they are wrapped up in tidy models of how the everything is supposed to work.  Meanwhile the real economy spins and gyrates all around them. These same economists then wonder why it is that their predictions often are wrong. Though as you may have noticed they rarely admit to their mistakes.

I believe, as it seems Mr. Buchanan does, that there is nothing inherently special about economics versus any other part of the universe. Like weather which allocates energy derived from the sun (mostly) in the fairly closed system that is planet Earth, economics is the study of the distribution of wealth, which as you may have noticed is also subject to both fair winds and gales.

It can even be argued that wealth really comes from nature itself, but I won’t go into that now.

I believe that nature is full of useful metaphors for economics beyond just weather.

For instance, a managed economy can be thought of as similar to a river with engineered banks. Dykes and berms are built up along a river to channel it away from towns and into irrigation ducts, but sooner or later mother nature always makes her presence known. A flood comes. Though the levees and berms may have held for years, one day they fail and the river rushes into the countryside.

In this metaphor the levy engineers can be thought of as the central banks, the river breakthrough as a recession or a depression.  Had there never been a levy in the first place the flood would have been much smaller and would have been shorter in duration. The waters would have receded and a welcome layer of silt would have renewed the soil.

Instead the berms (economic actions created and manipulated by the Fed) eventually let forth a torrent (a recession) that destroys everything in its path and which goes farther out across the plain than the flood would have had man just left the shores of the river alone.

Sure without the levees and dykes floods would still come, and sure some land would be unusable often because of these floods, but overall the dislocation for the river community year to year would be less.

Hydrodynamics and aerodynamics have much in common. Essentially they are the study of swirls and the distribution of energy. Economics is the same. Money swirls here and there. Wealth (not just money but wealth) is accumulated and is dispersed. To the degree that we intervene this living system is mutated and often creates unintended consequences.

If indeed the economy is similar fundamentally to the weather or to a river, perhaps it would be wisest to accept that we will likely never be able to control it, or even understand it completely. Perhaps we should learn to bend to the economy instead trying to make the economy bend to us.

Click here for Mark Buchanan’s piece.