Exit the Walras, followed by Equilibrium

Blinkered

As we saw in Economics and Psychology: The Divorce, the two queenly social sciences long ago parted ways. What we haven’t yet seen is quite what the economists did next, when they abandoned the idea that people had any part to play in economic behaviour.

To do this they chose to follow a path predetermined for them by physicists, which would have been all very well were it not for the fact that the bit of physics they choose to use turned out to be incomplete. Unfortunately, by cloistering themselves away from new research for nearly a century, this new reality was missed and by the time they emerged from their bunkers economics wasn’t so much wrong as irrelevant.

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Maxwell’s Demon Investor

Self-Organising Wardrobes

In the long-term we’ll all be dead because, in the long-term, there is no escape from the iron hand of thermodynamics which tells us that every system moves from a state of order to one of disorder. It’s a bit like your wardrobe spontaneously re-organising itself. Only when it’s finished you can’t actually find anything in it any more. Neat but bloody useless.

The measurement of order in a system is known as entropy and the idea that entropy always increases is bound up with the idea that energy ultimately moves from a useful and usable state to one in which it’s unusable and useless. And this is as true of stockmarkets as any other system – not even the perfect demon can outperform the markets other than by luck unless they can also escape the laws of physics. Entropy rules – OK?

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