Entroponomics Redux

A couple of months ago (December 10, 2012) I wrote that the word “economics” has become divorced from its original meaning and that “entroponomics” would be a more truthful label – one that would compel us to think more deeply about the consequences of our commercial behavior.

Most of us associate the word economics with high level planning and management intended to bring order and coherence to human enterprise. It’s what we think academic, government and corporate economists do. In reality, the term has become captive to a belief in infinite consumption growth: an absurd concept since we live on a planet with finite resources. So long as we cling to that impractical belief we will continue to be trapped in a cycle of increasing incoherence, disorder and entropy.

My research has long noted a correlation between humanity’s growing ecological overstep and the rapid acceleration of financial leverage over the past half century. Just as we have vastly exceeded Nature’s biological carrying capacity so too have we pushed financial markets into a chaos where the linkages between risk and reward are breaking down. The two events are related. As we narrow our resource options, we use more financial leverage to maintain the appearance of normality. It’s a pernicious cycle.

Now, roughly six weeks after I introduced the term entroponomics Bill Gross, founder of PIMCO and manager of the world’s largest bond fund, published a newsletter titled “Credit Supernova” that described how “entropic” the world’s monetary system has become. Using the words entropy or entropic no less than seven times, he warns that debt has become like a supernova star that “expands and expands yet in the process begins to consume itself” with “each dollar of credit creating less and less heat.”

The most extraordinary thing about Gross’ supernova newsletter is the source. Major financial institutions hate scare words like entropy because they fear putting off customers. So when someone of Gross’ stature has the courage to tell the truth, to say what many are thinking, the message goes viral.

Words are powerful because they come loaded with beliefs. Economics is today an amorphous wiggle word with so many different meanings and misleading associations that it disables clear thinking. Entropy is more precise and thought provoking, perhaps because it is grounded in hard science.

That brings me to ”memes.” These describe the rapid spread of ideas and concepts through a culture by word of mouth or Internet. Memes occur when diverse sets of people enter into dialogue in ways that can facilitate change. Connecting entropy to economics and finance is a new meme. It will no doubt generate a lot of feedback and contrary opinion. But that is healthy. It’s how renaissance movements are born and sustained.

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