Monday, November 30, 2009

Disequilibrium & Positive Change

Sometimes I wonder whether we human beings know exactly what we want.

We are constantly unhappy with what we have in order to create change.

1. Equilibrium

We dislike equilibrium and create disequilibrium.

Equilibrium means a stable state where everything is functioning well and smoothly. There are two such states: desired, or undesired.

If undesired, we want to get out of our low equilibrium by creating change and disequilibrium. In so doing, we hope to start the journey of arriving at a higher desired equilibrium state.

If desired, we would be quite happy for the equlibrium state to carry on forever.

2. Malaysian Society

In the context of Malaysia, when we started out in 1957, the economy was in high equilibrium but the society was in low equilibrium.

There was intention to disturb the low social equilibrium in the hope of maintaining the same high economic equilibrium.

In so doing, the social disequilibrium led to the downward adjustment of the economy as confidence evaporated.

3. What Do We Do?

Efforts are now made to re-establish the social equlibrium in the sense of social harmony. This is a good thing and should be vigorously pursued.

Whether this will necessarily lead to a higher economic equilibrium is another matter.

For all we know, we may want an economic disequilibrium with a process or dynamics that can bring us higher and higher, rather than stagnating at some sketchy vision.

It is a fact that Malaysia today faces an unsettling of its society with agitation at all levels.

While agitation will create change, there is no guarantee that things will necessarily change for the better. It takes good people in high places who know what they are doing to create positive change.

We cannot go back to where we were. We may not want to. But the forward march should start with more than just the same old agitation. It should be a modern view that our young generations can relate, for it is going to be their burden.


walla said...

Perhaps the incongruity started from trying to use Soros' reflexivity in a short-run Walrasian tatonnement.

General equilibrium pins labor income at full employment and then tries to calculate the price vectors at full market clearance based on output and interest rates (money and loans).

Since reflexivity is but making self-fulfilling prophecies in markets exhibiting non-smithian properties, disequilibrium can theoretically be sustained by continuously tweaking both price and quantity in order to foist exchanges even when markets don't clear.

In other words, the market is constantly fed new conclusions, thereby disrupting its information efficiency in order to achieve a new recontracting level.

Predating all this including the Keynesian model is of course Le Chatelier's Principle which states that an equilibrium position will move to counteract any changes on it.

However the principle is silent on Patinkin's labor market or Clower's dual-decision hypothesis which both lead to the Leijonhufvud's market coordination challenge, a problem subsequently tackled by Solow and Stiglitz by force majeure on effective demand affecting aggregate employment.

It remained for Barro to highlight that the crucial element in disequilibrium was the non-execution of some perceived mutually advantaged trade. This was reinforced by Grossman who assumed that business cycles were caused by incomplete information on the perception of potential gains from trade in market-clearing models.

Thus the appearance in recent memory of the subprime scorpion.

With these out of the way, we may now contextualize the blogger's exceptionally fine post.

According to Le Chatelier, any change inflicted on a system in dynamic equilibrium will see the system counterbalancing the change internally.

For instance, if hungry, eat. Then if ingested too much, stop until digested to reach a new equilibrium state of satiation.

The question is whether the second state of equilibrium is at the same level as the first. If the demand was high, then it will be higher. If the demand was indifferent, then it should theoretically be at par. If the demand was lower, the second level should fall below that of the original state. By level is of course meant energy levels which are written as orbital eigenfunctions.

walla said...

Next the cross-over from high-economic and low-social equilibria to low-economic and sub-low social equilibria.

This must mean that the perceived demand or aggregate desire has not been satisfied at two energy levels.

One, in the dispensation of wealth for new investment cycles. Two, in the rationalization of a social order to provide social equilibrium state for economic equilibrium repositioning.

Given the role of secondary effects in the above disequilibrium tradition, it thus seems that the problem cropped up because the two equlibria of economic and social were perceived separately when in effect they were intertwined to form a third equilibrium like three equilibria working interactively from the three points of a triangle.

One might be forgiven to immediately think that such a model of composite equilibria would yield fantastic permutations too complex to be amenable to rational decision-making.

Le Chatelier's Principle however levels the problem and simplifies it - simply because all three equilibria will automatically try to maintain their respective status quo.

The critical deciding factor then is reduced to the perceived aggregate demand. What is perceived to be desired by all?

It cannot be short-term desires - otherwise we come back to the base three equilibria. Thus it must be long-term desires.

It cannot be bad desires - otherwise change will be negative and not positive. Thus it must be good desire.

Good and long-term desires by aggregate are thus long-term sustainable good of nation.

Therein lies the challenge. To answer that question, one must move out of the triangle and create a pyramid with base of three and apex of one. A fourth equilibrium sits atop the base triangle. Its only function is to equilibrate the nation's sustainable long-term good.

Thus we are left with only one question out of this devilishly long-winded argument about disequilibria and positive change.

What is the equilibrium position of the nation's sustainable long-term good made of?

the end.