Which of the two scenarios is better? You teach your child the moral lesson by encouraging and supporting discipline and a diligent work ethic, which will make him or her a better person and a more useful member of society. Or, you teach your child the monetary lesson by compensating him or her with material benefits for excellent grades in school, showing that better performance gains better rewards. It’s a trick question.
Good parents spend much time and effort providing some sort of system to help their children develop into responsible adults, which usually provides for a better life for their children and that is what we all want. We parents have the difficult task no matter if the choice is “moral” or “monetary.”
That is one reason the first paragraph is a “trick question.” There is another.
In 1803, the French mathematician Lazare Carnot proposed that in any natural process there exists an inherent tendency towards the dissipation of useful energy. We call that concept and process “Entropy.” A consequence of entropy is that certain processes are irreversible. For example, “cold” is the absence of “heat.” Your refrigerator takes “heat” out of the box and puts it on the outside. Heat will flow to a cold area like placing a pot of boiling water in the freezer.
But entropy also is the concept that if left alone from external forces, everything will go from an orderly state to disorder like a raw or green mango to a rotten mango. Just like children.
Romanian economist Nicholas Georgescu-Roegen touched on the idea in 1971 as he argued that economic scarcity is rooted in physical reality like over enough time, all mineral resources will be totally exploited and disappear.
However, even with entropy ruining our lives on a daily basis (my air con never needed repair until enhanced community quarantine), the broader picture shows an eventual long-term equilibrium in many instances. A rotten mango that falls from the tree to the ground can produce—overtime—a healthy mango tree producing more mangoes.
Léon Walras, a French economist working on the ideas of classical economist Adam Smith, propounded the idea that economies and markets always return to a steady stable state regardless of the amount of natural entropy. How much entropy has the pandemic caused?
However, there is “dynamic stability” as when a supply shortage causes an imbalance in supply and demand, raising prices. Then suppliers increase production to take advantage of the higher prices. Unfortunately, there is “artificial stability” such as when government intervenes by subsidizing the price of common goods like gasoline or rice. This can lead to serious shortages if the subsidies are never removed, as there is no incentive for increased production.
The New York stock market has always been going up for the past 13 years until briefly in 2020 when Covid shut down the whole economy. No entropy whatsoever in over a decade? Never a correction and reversal? In physics, “dynamic stability” is the ability of a system to return to a steady state of operation after significant disturbances. Apparently, there was never a situation in the US during the past decade that could be classified as a “significant disturbance,”
Artificial stability strips the mechanisms of dynamic stability. “Dynamic stability” requires volatility, liquidity, and removes the illusions of low risk of artificial stability that essentially guarantees gains for those who continue to increase their positions, as has been the case this past decade. “Artificial stability” was brought to the stock market by the never ending “money pumping” by the US Federal Reserve.
Like removing price controls and subsidies, if the forces behind artificial stability ends, it is always crash-and-burn.
E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.