Saturday, December 24, 2011

Where did all the money go? From Physics to Economics.

Living in California, the Real State Bubble was hard to miss from way before it actually had popped. When I arrived back to Temecula in 2005 the house prices were not real and you could tell. But, it didn't stop there it kept going up and up until the inevitable end.

When the bubble finally burst, as I saw friends and neighbors lose their homes, there was one huge question in my mind:
Where did the money go? Did it just disappear?

Having a strong physics background I started to believe that the answer was "money can be transformed but cannot be created or destroyed". Of course, this was a clear translation from the First Law of Thermodynamics:
"energy can be transformed but cannot be created or destroyed".

Time went by and data started to come out on selected news sources. We could see how the wealth gap grew in a disproportional way:


The concentration of wealth completely redistributed and as my hunch was telling me the money didn't just disappear but it experienced a deep transformation in which it changed hands.

I'm not really making a law of economics. I'm more like posing a question and wondering about the advantage of adding a cross-disciplinary perspective to the subject.

The obvious next step would be to consider the Second Law of Thermodynamics would apply to worldwide economy as well:
"A tendency that over time, differences in temperature, pressure, and chemical potential equilibrate in an isolated physical system".

Would it be possible that the globalization process we're seeing and the crisis in the first world paired up with important development in countries such as Brazil, India, China and others is a result of an equivalent law to the Second Law of Thermodynamics?

If that were true, we could predict that the world will end up being more balanced and inequality gaps would tend to be reduced over time.

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