Economics as a "System" --Negative and Positive Feedbacks

What is a "System"? Mathematicians and physicists usually use this word to denote a collection of stuff, with interactions between parts of the stuff, as the collection evolves through time. And yes, this is a definition so general and so vague as to be practically useless. But some examples will help.

Think of the system of the world's oceans. The water in the oceans, constrained by gravity, viscosity, differences in temperature, etc flow around in more or less well-defined patterns. We have the Gulf Stream, which carries heat from the Caribbean to keep Europe warm, and there are lots of similar flows, in the Atlantic at different levels, in the Pacific, and the various polar oceans.

A much bigger, and in some ways simpler system, is the collection of all material in the universe. We are told that a few hundred thousand years after the big bang, when things had gotten cool enough, material particles started coalescing out of the great energy soup. The negatively charged electrons found the positively charged protons, and for quite a while we had hydrogen and helium distributed absolutely uniformly throughout space. That is the way things were when this system started; how it evolved we shall consider below.

A ferociously complicated system is the system of human beings scattered over most of the land area of this planet. From Dravidian remnants in India, cultivating their lands, up to the rich making their living in Wall Street, the six billion or so people around interact with each other, sometimes making love, often making war . . . this is the system that we want to look at. In particular, we want to look at how all these people earn, or gain, their livelihoods, or wealth.

Since Adam Smith, we have known about the Invisible Hand, which makes sure that the enterprises of our neighbors work to our benefit. In particular, we know about competition. We know that the bakers who wish to sell us bread are in competition with each other. Baker A can't charge us more than Baker B, because then we'll go to Baker B for our bread instead. Scientists like to say: the quantity

(bread price from Baker A) minus (bread price from Baker B)

experiences _negative_ feedback over time: the forces of our purchasing power pushes down this difference. It is very important to note that "negative", usually a Bad Word, is a Good Word in this context. The situation forces stability on bread prices; a Good Thing.

In considerations of systems, our language indeed becomes perverse. For here is an example of _positive_ feedback, an example where differences are exacerbated by interactive forces, with astounding results. It is the example already considered, of our hydrogen-helium mix, at still incredibly high temperatures, very early in the universe, and of the forces this mix experiences.

What forces? Well, Newton's law of gravity applied. Everything attracts everything else, with a force jointly proportional to the masses and inversely proportional to the square of the distance between them. And since negative charges had gotten together with positive charges, that was about all there was.

Early on it was absolutely homogeneous. BUT . . . after very little time certain spots, due to quantum fluctuations -- what else could have been the cause? -- got just a tiny bit denser than other spots. Denser; that means those spots had greater mass, so their attractive force was greater. Result: they got more dense yet. Scientists say: differences of density experience _positive_ feedback. Which means: differences between densities tend, over time, to become greater.

And now, 16 billion years later, look at things! Matter is still very thinly spread throughout the universe: several dozen atoms per cubic meter is the _average_ density. But we don't experience this. We have several trillion atoms in the tips of our little fingers. And this is already not very much. The interior of our sun is much denser, and the neutrons in a neutron star are packed much more densely yet. But there are only two or three atoms per cubic meter way out there in the unfathomable space between the galaxies . . . Positive feedback has done its amazing discriminatory work.

Back to our human system. We have talked about the negative feedback that so impressed Adam Smith and which is still exhibited in our economics courses. But there is a very related positive feedback that has very deleterious workings. Let's revisit our bakers: suppose, somehow, that Baker A gets a leg up on Baker B. This is not in theory supposed to happen, but, like quantum effects in the early universe, it often does. A new development opens near Baker A's shop; or Baker A's rich aunt dies and leaves him some money. Somehow, Baker A gets the wherewithal to hire an extra salesman; or put up more advertising, or open a second store . . . Well, this means that the likelihood that his sales will increase over those of Baker B is very great. There is no universal Newton's Law here; Baker B may possibly catch up. But the betting is on Baker A, once he is a bit ahead. So he'll get more ahead, the disparity of their incomes will push their disparities greater, and "positive" feedback will work its ugly way. In a generation, Baker A and his descendents will become Wonderbread, and Baker B will be lucky to maintain some custom against the superior advertising and efficiency of scale of the Baker A enterprise.

And this effect is everywhere. Some people discover a Spindletop on their land, and become rich beyond the dreams of avarice. Their children have great tutors and schooling, inherit places at great universities, and often inherit presidencies, if not of country then of companies. And this horrible positive feedback principle works with countries too. Country A has wonderful soil, wonderful forests, wonderful mines, and is separate by oceans from hostile powers. It becomes the Ruler of the Universe, the "indispensable Nation". Other countries, cooking under hot sun, with horrible soil and no water; they have a hard time, and the differences between these two countries, despite the best will in the world, stays great, or grows even greater.

"Yes yes", you will say; "I already know that the Rich inherit the Earth." And the point of this screed is to point out that this happens no matter how society starts, because of the odd chance of some people catching, way back, a lucky break that the others didn't get. We can say: the reason why there are Rich who have so much power is: this law of income inequalities producing "positive" feedback.

There can be forces in a society working against the perniciousness of positive feedback. Democracy is one. In the voting booth all are equal. I have one vote, the same as any billionaire. But of course we see in our own United States this One Man One Vote principle eaten away. The billionaire owns newspapers and TV stations and reach hundreds of thousands of his fellow citizens, urging them to vote _his_ way once they enter the voting booth. Many have speculated that democracy itself is under siege because of the positive feedback effect which produces, over time, such inequalities.