There’s a song in Muse’s latest album that stands out in a big way. Not only is it their first song to feature dubstep, it incorporates an ambitious attempt at their own economic theory. You can listen to the song here but since the economics bit is so short, here it is in its poetic glory-
All natural and technological processes proceed in such a way that the availability of the remaining energy decreases. In all energy exchanges, if no energy enters or leaves an isolated system, the entropy of that system increases. The fundamental laws of thermodynamics will place fixed limits on technological innovation and human advancement. Energy continuously flows from being concentrated, to becoming dispersed, spread out, wasted and useless. New energy cannot be created and high-grade energy is being destroyed. An economy based on endless growth is unsustainable. *cue crazy dubstep*
Now I know it’s just a song so maybe it shouldn’t be taken too seriously, but it’s certainly an interesting idea- can we apply physics, particularly thermodynamics (the laws behind gases), to the economy?
The gut reaction would be no, of course not, the economy is based on inherently unpredictable human beings, how could this be governed by the laws behind gas expanding or ice melting? Human beings are not well-behaved atoms. But this is where thermodynamics is different to this atomist idea of science- thermodynamics accepts, embraces even, the idea that we can never really know what any one atom is up to. And yet it manages to produce extremely powerful laws that have been shown to be very accurate and are behind most of the inventions of the industrial revolution, such as the engine. So how do physicists get from calling atoms unpredictable to neat, predictive laws? Statistics, dear boy, statistics.
We may not know where an individual air molecule may be in 5 minutes time, but we can get an idea of the most probable places it will be. Scientists often call this the “random walk” model- if you flipped a coin to determine if you should step forwards or backwards, the chances are that after enough throws you’d get about as many heads as tails and end up somewhere close to where you started off. The modern equivalent of this is called the “Apple Maps walk”. Now imagine doing the random walk experiment with a thousand people, all starting quite near each other. Let’s go to the top of a tall building and look down on our coin-flippers after, say, a thousand tosses. What will we see? We should find that most people are pretty close to where they started off, even if only a few are exactly at that spot. We’ll also notice that there are people a bit further away but that there are fewer of them the further out we go in either direction. Then we might find one guy who made it all the way to the end of the street. He was the one guy who managed two hundred more heads than tails. Someone was bound to, after all.
The shape or formation of these random walkers is what mathematicians call a “normal distribution”. Now let’s throw in thousands more people and get them to spread out across a whole city, flipping coins as they go. From our aerial perch you might be struck by something- doesn’t this look an awful lot like a gas expanding in slow motion? It turns out that atoms can also be thought of as flipping coins and while some of them might end up in strange, unpredictable places, like the guy who threw a lot of heads, the overall formation is fairly predictable- a normal distribution, with things like pressure and temperature affecting probabilities.
And so with this model we manage to get the solid-as-a-rock- laws of thermodynamics, even if we can’t say much about what any particular molecule is up to. What the Muse song was suggesting is that we could apply this principle to the economy as well and with a bit of thermodynamics in our pocket, we can see why. Might humans also perform random walks with their economic decisions? There’s a chance some people will want to spend money on video games, others on holidays. Some people will want to be doctors, others teachers. We can’t predict what any individual will do but could we find an overall, reliable distribution that gave as a decent insight into the overall progress of the economy? Many physicists in recent decades have thought just that. Unfortunately for them and for the rest of us they were wrong. Massively wrong.
The logic of thermoeconomics (yes I made that up) seems pretty sensible but unlike thermodynamics, it simply doesn’t face up to the evidence. Thermoeconomics does actually provide a reasonable way to model the everyday fluctuations in the stock exchange but where it fails is exactly where it is needed most- it is helpless in the face of extreme events. Thinking back to thermodynamics, it is pretty clear that when released from an aerosol, the particles of a deodorant will spread out fairly evenly across the room. What we would never expect to happen would be for all particles to very abruptly gather in the corner of the room. That just doesn’t happen. Unfortunately this is exactly what happens in a stock market crash- people stop behaving randomly and start moving in herds. Where selling once balanced out buying, suddenly everyone wants to sell. Where lending balanced out need for capital, suddenly everyone’s too scared to lend.
Part of this is psychological. Fear can prevent people from making what might normally be seen as a rational decision. Lack of information can make people risk adverse. But more than this is a fundamental problem with the thermoeconomic model. Thermoeconomics assumes that all economic “particles” are independent of each other but in our economy people and institutions can get much more interconnected than was previously thought. Banks were way more exposed to the housing market than anyone had realized, for example, and as one bank faced failure, the complex web of banks lending to banks lending to banks left the whole system in danger. The aerosol gas was retreating to the corner of the room while neatly spelling out “SHIT”.
So where does this leave our philosophizing rock stars? The thermoeconomics they preached may be no good for accurate day-to-day prediction, but could it be applied to make comments about the economic system in general? My instinct is no, it can’t. Not only is thermodynamics a rubbish way to model human interactions, we are not an isolated system. The earth emits thermal radiation out into space in a more disordered form than it came from the sun, increasing the entropy (disorder) of the universe but not necessarily of the Earth. The only bit of their argument that really makes sense is that we should be cautious about using limited resources. But that much is pretty obvious, a posh way of saying that resources won’t last forever. We just need to use more renewable resources to avoid running out of fossil fuels, that’s all. There’s certainly no reason to believe thermodynamics put a limit on human progress.
Perhaps I shouldn’t have taken the song too seriously, but it’s been a fun ride. The next time you hear a rock star make some claim about the application of physics to economics, you’ll be well armed. Muse should stick to their music.