Tuesday, March 18, 2008

VI. The Myth of Economic "Complexity"

"Our new economic approach is rooted in ideas which stress the importance of macro-economics, post neo-classical endogenous growth theory and the symbiotic relationships between growth and investment, and people and infrastructure." ~Gordon Brown

On Sunday, March 16, the Minneapolis Star Tribune ran an article titled, "With no rules for crisis, Fed must improvise." No rules? How is it even possible that after more than two centuries of formal economic study, the field still has no "rules for crises"? Obviously, something deeply fundamental is awry; but if pressed for an answer, economists will respond virtually to the last man that the economic process is simply 'too complex;' that it is a system comprised of a vast number of different components with different functions, and that these are all inseparably bound up in an interlocking tangle of circular relationships.

However, there are very strong reasons to suspect that this may just possibly be an illusion. For the great failure of modern economics is in that it has been unable to identify a common denominator in order to pull it all together, for common denominators are absolutely irreplaceable as the sole means to integrate any seemingly disparate set of components into a cohesive, comprehensive and unified point of view.

Without a common center, the relationship of any given part to the whole must otherwise be analyzed as a basically independent factor; but at best --particularly since economics is permeated throughout by the nonlinear dynamics of feedback-- this approach merely creates an expanding web of unspeakably complex relationships. And this of course, is the modern experience. But a common denominator makes it possible to describe every facet of the economic process in terms of a common language, and the result is a completely unified point of view.

Now, the argument I've been advocating in each post --and which is actually very simple to prove-- is that this common denominator is energy --thus, "economics" is fundamentally a branch of applied physics. From this perspective it then becomes increasingly clear that study of economics simply made a bad beginning and became muddled very early on by mankind's almost universal fascination with money. Economic theorizing thus began with a small set of unquestioned assumptions surrounding money, trade and the nature of "value" as givens --when in reality, the dynamic nature and flow of energy in states of feedback has always been far more fundamental to the principles of the economic process.

Instead, given that money had value, and this value was designated in numerical terms, the study of economics did not really begin with any truly objective analysis, nor with any attempt to delineate its most fundamental nature by first simply tracing it back to its earliest possible point of origin. It began somewhere in the middle, already weighted with a syntax that was poorly adapted to the purpose of describing events in more fundamental and energetic terms, and it never recovered. Today however, we can make a fresh start simply by tracing the origin of the economic process back to the dawn of life itself; and in doing so, we come to clearly realize that the most fundamental source of economic "value" that ultimately maintains the value of our monetary system is, in and of itself, neither abstract nor subjective.

It has become a matter of faith for economists that money comprises the most fundamental essence of the modern economic process, even though in practice this simply doesn't really work. To understand why, imagine that physics was as widely studied as it is today, but no one had any concept for energy; that it had calculus, but without any underlying thread with which to balance and ground its equations. Under these circumstances, it could only describe phenomena in the most indirect, metaphorical and complex terms. Its descriptions of physical events would be inevitably disjointed and filled with inexplicable mysteries, unaccountable attributes, and paradoxes. Indeed, the more one tried to describe the whole, the more one would wander into a maze of complexity.

This is precisely what happened to the study of economics: it is a physics without roots.

So today, we have no choice but to hear Douglas Elmendorf, former Fed economist say: "Modern monetary policymaking puts a lot of weight on rules, but there is no rule book for an economic crises."

This is surely a completely absurd state of affairs, when all anyone really needs to do is to begin at the beginning --first, by observing the universal relationship of every consumer to food (a reiterative energy loop), and then recognizing just when this process must have begun. It then almost immediately pops into focus that the so-called "economics" of life is --and always has been-- nothing other than a circular, feedback energy process that has comprised the sole, unadorned essence of the economic process for eons; a cyclical phenomenon in which every consumer organism --from single-celled creatures to office workers-- is kept in a state of constant search for that which represents the essence of greatest "value": i.e. the energy in food.

It is a revealing thought experiment to just hypothetically subtract all of the potential energy from any given food source, because it then also becomes apparent that one is thereby also subtracting all of its "value." In other words, we see that "energy" and "value" --particularly in this instance, but also in a more universal sense as well-- are fundamentally interchangeable concepts. We can thus legitimately refer to economics as a "physics of value."

This same basic equation thus holds true for every other component of the economic process. Just look again at the underlying identity and common meaning hidden within such elements as work, fuel, tools (all based on the physics of energy forces), systems of tools (factories) in conjunction with labor, and last, but not least, money. Money, as we intuitively express it, is power.

But what is the energetic "value" of money? Money shares the same basic definition of any tool --in that it introduces a quantitatively higher level of efficiency into the economic process. By means of money, we don't have to carry lumber, corn or machine parts around on our backs in order to make a transaction. Its use thus effectively introduces the equivalent of more energy into the process, for here as everywhere, efficiency means less energy consumption.

Every aspect of the economic process, every product and service and transaction thus ultimately represents an energy value --even in the case of the (supposedly) completely abstract value of modern currencies. Every given component is either an energy source or an energy process or, as in the case of money, equivalent to an energy source, for the quite simple reason that "economics" is just an example of the messy physics of life.

This is why "economics" is really just an unrecognized field of applied physics. It's an Energy System blanketed by a Money System. So by virtue of a now recognizable common denominator, we can proceed to integrate our explanations for economic events in terms of a common language, which then leads to the matter of engineering a completely unified and comprehensive economic system

In the process, we can now clearly see for the first time that the phenomenon of economic decline is basically nothing more mysterious than a decline in energy flow. It signifies that energy output, in terms of labor and/or food and/or fuel and/or energy generating technologies, is in decline due to an insufficient input. But this cannot be corrected by manipulating the money system, because varying the flow of capital by any means has no positive net effect on the economy at large, for the simple reason that its effective contribution --in terms of efficiency-- is already built into the system.

In other words, since the principles of monetary theory are based on a purely abstract concept of value --and not on any concrete physical essence-- today we find ourselves with an unstable economic system built on stilts. That is, on a purely psychological "trust standard," on "consumer confidence." In brief, on a very, very shaky foundation indeed.

Thus modern economics is deemed "complex" --
and arguably schizophrenic-- but only as a consequence of the very perspective that maintains it in the first place, for its underlying reality is sublimely simple.

For the moment, the future is therefore a hairy prospect, but in spite of the looming potential abyss, it does not mean that we have to slide down the same slippery slope that ate the Soviet Union. For because our economy is a system --because it is an energy system; and because it is an energy system that is both represented by a tool and built upon the use of tools --the economy is, in and of itself an unrecognized and untapped technology.

This means that, as a technology for the production of energy --and as a process subject to clear and obvious engineering principles-- its potential for producing prosperity lies far beyond our accustomed norm. We merely need to start paying attention and rethink everything from scratch.

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In the Beginning, there were Consumers and Food...


WAKE UP! It's an ENERGY System --Not a Money System!

"Energy is also measured in joules. In many ways it resembles money: it is a currency in which all processes in nature must be paid for. Just as money can come in dollars, pesos, yen, rubles or liras, so energy can come in many forms--electricity, heat, light, sound, [kinetic], [mechanical], chemical, nuclear."

Mankind as a whole is profoundly muddled concerning the nature of economics. The most prominent symptom of this is represented by the common euphemistic assertion that economics is an extremely ‘complex’ phenomena, first of all because it appears ‘inarguably’ comprised of a vast host of distinctly different physical “factors,” but whose ultimate impact is also determined by the vagaries of human psychology.

This would be laughable if it did not also reflect an essentially universal consensus. There is scarcely a soul on the planet that does not accept this state of affairs as an inevitable fact of nature. So instead of laughing, I –who may be the ultimate contrarian— am forced to feeling far more appalled and saddened than entertained by mankind’s general incapacity for critical thinking.

Even our scientists don’t question the most basic premises of modern economics. Why? Apparently, the reason is because it’s not a field of science –an observation that of course, merely points to the reason behind the reason: that they are themselves generally incapable of recognizing their own immersion in a cultural cul-de-sac of circular reasoning.

Here is what I mean. I have yet to meet anyone who doesn’t automatically accept it as a fact that economics is something that originated with barter and trade. The moment once accepts this premise as a fundamental principle of economics however, is precisely the very same moment in which one stumbles blindly into a labyrinth of unintegrated ideas and circular logic, because the act of trade presupposes a far more fundamental and energetic set of principles.

For the sake of what brevity is possible at this point, I will state the reality more succinctly. Life is subject to the phenomenon of economics for the simple reason that it gets hungry. This is why food is ultimately the most basic of economic necessities, but even this is merely a foreground expression for the reality –entirely provable—that “economics” is grounded in pure physics, because life itself is nothing more or less than the biological manifestation of a circular, feedback energy process.

Make no mistake. There are no other principles, and the only reason you believe otherwise is because you have been deeply immersed in the concepts and trade language of money since you were in diapers. But “economics” is pure physics, and I can say this without equivocation, exemption or caveats of any kind, because I have developed a completely integrated and internally consistent explanation, made possible only because I began by identifying the actual origin of the economic process. From that point on, a process of enlightenment unfolds, being hinged simply on an observation with respect to how the principles of energy in various states of feedback have manifested through the agency of various representative forms, such as food, tools and money. The result is a seamless overview that is particularly applicable towards a complete understanding of the phenomenon of economic decline.

Do you remember any of your high school science classes? You were clearly told that every thing and every event could be described in terms of energy. Everything! This, of course, is what E= MC2 means. And yet, as you grew into adulthood, you quickly adopted the prevailing notion that the ‘value’ of money was really just an ‘abstract concept’ and therefore something best left in the hands of people who really understood money ... bankers. Don’t even bother wondering how they managed to take over the world. And don’t scratch your head over why the monetary systems are now collapsing. Nature hates a vacuum; so it hates the financial sector most of all.

So in order to avoid the implosion of our own skulls, let’s all take a fresh look at reality. In seventh grade, you were also told that every form of energy could be converted into every other form. Therefore, take a moment to consider all of the various forms of energy that comprise the phenomenon of economics today: Food (energy source); human and animal labor (energy sources); the entire spectrum of technologies, all based on --take a note!-- the physics of fundamental forces, forces that serve to provide either a direct source of energy, or as a means to effectively amplify the effective energy of every consumer organism (can-openers; telephones; cars, etc.); and fuels (food for technology) of a chemical or atomic nature.

Think now. Many times a thing is more obviously recognized by its absence than its presence. Therefore, if we conceptually remove all of the above categories from the economic process, what remains? Money –which all of our banker friends would have you believe comprises the very essence of the economic process.

But what does money represent? It represents “value,” but this really just begs the question. We have to go just a tad deeper. For example, one can buy food with given quantity of money, because money is supposed to accurately reflect the relative ”value” of food? And what comprises the essence of this ”value.” In the most fundamental sense, the value of food essentially lies in some given quantity of energy. In this case, as in all others, we can clearly see that, at the most basic levels, the term “value” is really just an unrecognized synonym for “energy.” In other words, if one removes all of the energy from food (fuels) –or tools, then one also automatically removes their very purpose and meaning as well.

Everything about economics can therefore be transcribed in terms of energy and understood in terms of pure physics. After all, while physics can most assuredly be described in the symbolic terms of numbers, this obviously does not mean that the dynamics of physical systems are based on abstract concepts.

In other words, money is far from fundamental to the phenomenon of economics and can, in fact, be completely replaced in terms of energy.

Gold is an implicit energy standard

And this finally brings me to a final and brief discussion of the gold standard. At this moment in time, I am, myself admittedly a gold bug. But this is merely as a practical matter, because I know that the true attraction of gold as money stems from its virtue as an implicit energy standard.

You see, while the ”value” of gold is often alleged to reside in its relative rarity –and therefore uncommon and “precious” by definition— the term “rarity” is really just shorthand for “requiring a great deal of energy to obtain.”

For example, Earth probably has a blob of gold the size of Texas floating at its core. Go ahead, pick a number; but the point is, what would be its “value” as a currency if every particle of gold in the planet were to somehow vibrate its way to the surface one fine day? Under these remarkably horrifying circumstances, it is likely that the entire surface of the globe would become covered with gold to the depth of several inches at the very least.

What would be its “value”? It would not be absolutely zero, because gold does indeed provide significant technological advantages in terms of current flow over many other elements. However, this value would essentially be determined by how much energy it would take to bend over …and pick it up…

As fate and nature would have it though, gold remains the ultimate fallback currency --to this point anyway-- because the cost in energy to obtain it has remained largely consistent over the centuries. There are more industrial methods of extraction since the days of the Roman Empire, but the quantitative demand and the “cost” of energy itself is greater (“cost”: i.e. takes more energy to produce energy).

Gold is therefore necessarily the default currency towards which the world is inevitably gravitating in its spontaneous search for stability. Gold secretly represents a relatively consistent quantity of energy, and thus provides a relatively stable benchmark for the underlying value of everything else.

Parallel reality: a Post Paradox world

Beyond gold and fiat currencies and currencies based on multiple-commodity standards lies a whole new set of potentials. This is a stage at which the underlying reality and the true principles of principles emerge into the light of day. “Economics” is transforms into a field of science, and the implications are such that economic systems can then be literally engineered to produce states of permanent and universal prosperity, and all the paradoxes and economic conundrums and shortages characteristic of the current regime are automatically nullified.

NESTED LOOPS: The Economic Process As Experienced By Every Consumer Organism at Any Given Level:

NESTED LOOPS: The Economic Process As Experienced By Every Consumer Organism at Any Given Level:
The "Single-Celled" Economic Template: Every single-celled creature represents a complete economic system comprised of electrical, mechanical and chemical forces whose fundamental natures are not separate, but merely represent translational stages, stages in which energy is merely transferred from one state or level into another. Ultimately therefore, they cannot be parsed, so from the position of a comprehensive overview, as in the case of a fully integrated theory, complete understanding depends on perceiving the state of the whole as a reflection of a single entity: "energy." Itemization in this instance is entirely counter productive. (It is, in fact, the very approach that has prevented the world from achieving any true understanding of the nature of economics.)

For example, the flow of electrochemical or electromagnetic energies throughout a nervous system is projected into the "economic" environment by means of the mechanical force of contracting muscle tissue. For eons, the job of obtaining food --which, like currencies today represented an acquisition of greatest "value." That is, food has always been valuable because food represents energy. Therefore, the feedback loop of the internal economic system of each consumer organism--that is, the neural and metabolic continuum of energy that comprises Life--
cannot be distinguished as separate from the economics of its life as an externalized system.

Precisely this same pattern is observed at every level of scale. Beginning with single consumers (regardless of their evolutionary standing), the pattern repeats in the form of collectives of consumers (sponges to corporations, etc.); and manifests simultaneously at the level of collectives of collectives of consumers (i.e. nations, etc.). In brief, as seen from the most fundamental perspective, the internal and "external" economics of any given nation is absolutely identical in essence to that of a microscopic protozoa.

And if you think that the economic forces of a nation are 'more complex' than those of a single cell, then you haven't looked closely enough...

If Economics is Physics, then why does consumer psychology play such a large role; or rather, why is "value" also appear to be a merely subjective phenomenon? Rethink everything. There is really no contradiction. Remember, the economic process is ultimately just an extension of the feedback dynamics of life itself. The core loop entails the aquisition of the energy represented by food, which after ingestion, then in turn becomes incorporated into the nervous system as the energy of sensation. This itself is an example of pure physics, but when couched in terms of sensation, we must say that the search for, and digestion of food is itself merely an expression of sensory feedback and motor control. This is why economics appears so "subjective," and yet at the same time, we can also describe it entirely in the "objective" terms of physics.

In short, the internal economic process is ultimately projected into the environment and "objectified" in terms of tools and money, to produce the economic process that we conventionally observe. And yet the underlying principles and process remain utterly one and the same.

As always, all confusion is eliminated through the total unification of concept and sense, and the destabilizing and volatile effects of "subjective" phenomenon cease to be an issue.

In fact, the engineering principles for a truly integrated economic system could well be said to reflect the fundamental physics of sensation.

Think about that for awhile...

Why is this theory referred to as "Post Paradox"?
Nature is constructed in such a way that any dynamic continuum without perceivable roots becomes a chicken-and-egg problem. Today, the worlds' monetary systems have been cut loose from physical reality primarily because modern economists have never realized that the term "value" is always and everywhere merely an unrecognized code word for "energy."

(For example: What is the "value" (meaning) of food?) Consequently, because the meaning of meaning, of value has never been fully digested, modern logic --which starts somewhere in the middle with "barter" and "trade"-- automatically defaulted to the notion that "value" must therefore be just an abstract concept. However, this is precisely why economics is still plagued today with an aura of metaphysics, rather than imbued with the simple clarity of physics.

The world community of economists doesn't realize that it is dealing with a pure energy system, so it is essentially characterized and trapped within this following vicious circle of reason: To "control" inflation, the authorities raise interest rates in order to reduce the flow of money. Unfortunately, this increases the rate of unemployment; however, they only way they know to decrease the rate of unemployment is to increase the flow of money. Now "obviously," the only way to do this is to decrease the prime interest rate, so they naturally feel compelled to lower interest rates... And around and around we go...

So, what if both inflation and unemployment are already high and on the increase? What if an economy is in a state of "stagflation"? What can anyone do? Well, if one is in charge of the money system, nothing at all --because you are trapped, by definition, in a paradox created by a faith in the sequential logic of cause-and-effect.

When faced with a continuum however, linear logic produces only vicious circles; so the primary strategies of the money-centric mind really merely define a balloon-squeezers' strategy to make the balloon bigger --but if a balloon is shrinking, it will continue to shrink no matter which end is manipulated.

In short, the only way to reverse the progressive decay of an economy in decline is to fully integrate the Money System with the far more fundamental principles of the underlying Energy System.

The term 'Post Paradox' thus signifies a point of view that transcends the vicious circles of reason that are inadvertently generated by modern thought processes, because from our new perspective, economies can be engineered to render permanent and stable states of prosperity.