Laminar and turbulent water flow over the hull...

Laminar and turbulent water flow over he hull of a submarine. Image via Wikipedia

In physics, there are some basic laws that must be applied always, we call them principles, but other can change if something changes. If we analyze the dynamic of a fluid, at microscopic level the behavior is random, but at macroscopic level we can find laws to explain the behavior. Unfortunately, classic physics laws are different when a laminar flow turns into a turbulent one.

Do not you believe that physics laws need to change? Have you ever asked yourself the reason because a subsonic plane is cross-shaped and a supersonic one is arrow-shaped?

Economy is a complex system, and its behavior can be seen as the behavior of a gas. In a gas, many particles are colliding randomly interchanging energy among them. In economy many people is interchanging goods and services while they interact unsystematically.

If economy enters a turbulent state, old laws cannot explain its behavior, but many economists are not aware of this simple fact.

These changes in the behavior of the economy can explain why rating agencies could not predict Lehman Brothers’ crisis. They were using metrics and laws that could give a bad explanation of the health of a business.

Would not it be interesting using economy principles and find new economic laws to analyze a turbulent economy?

Advertisements