Letter to The Economist

“You write in your editorial (“Breakthroughs and brickbats”, 23 July) that ” . . . [economists] should study instability instead of assuming that economies naturally self-correct.” Yes, there are instabilities in the world economy. We’ve just experienced one — the 2008 Crisis. But this is due to a Third Body — the financial system — which is strictly extraneous to the essential one — producers negotiating with consumers.  In the case of economics, however, the Third Body is more subject to instability than the main narrative.

“Focussing on suppliers and buyers, they operate in a physical system which, like all such systems, is subject to the laws of physics and, in particular, the laws of thermodynamics and the principle of least intrinsic effort (or maximum energy dispersal or entropy).

“Given a fairly constant injection of energy into the economic system from year to year, then the principle of least effort has it that the system will always hunt towards its most efficient state. This applies from the level of the sub-atomic electron and upwards. If it’s impeded from time to time by adverse economic decisions such as QE — themselves the products of the physical systems of the human brain — then stabilisation will take longer. Nevertheless, the hunt to maximal efficiency will resume. Neoclassical economics is right after all.”

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