Thursday, May 29, 2014

In mature market economies competition produces inequality

 Energetic changes during an economic cycle

The causes of inequality throughout history can be easily explained by the class system, lack of access to education, information, healthcare, infrastructure, safety, which accumulates wealth in few hands. Today, the root causes of social differences are beginning to be addressed in most parts of the world, yet global income inequality has risen from early 1800 to 2000 by more than 20 %. Throughout history, disparity appears to have a similar trajectory surprisingly similar in most countries all over the world, is missing. Quoting Frank Cowell of the London School of Economics and Political Science, "Giving up explaining the exact shape of the income distribution decades ago, economists estimate inequality using only raw data, and don't depend on knowing the distribution's precise mathematical form." My blog, 'Is inequality necessary for economic progress?' proposes an evolution hypothesis, which applies to societies. During an economic period, the inequality initially is reduced but intensified as the economic cycle matures. In fact, great disparity contributes to the collapse of the cycle. Here I will elaborate further on the exact causes of inequality and the structure of the economic period. Economies actually form self-regulatory systems. Economies continually strive toward energy neutrality, but it is only satisfied in the middle of the process. In the beginning, excess resources and human enthusiasm mean energy surplus, which drives progress. The third phase of the cycle is ruled by a shortage of materials and anxiety, which hasten the demise of the period. Energy shortage, degradation, and demoralized population coalesce in chaos, the cycle collapses

First phase: Economic cycles begin on the decimated remnants of the previous cycle (A). Even though economic cycles inevitably end in chaotic upheavals, revolutions, or even wars, the intellectual, scientific advances of the previous era is widely available within the system and makes economic renewal possible. The few companies, economic entities that survived the upheaval receive a great boost from the growing need for goods and services. New companies, new industries are ushered in, thriving on the emerging buying power of citizenry. Unemployment plummets. Competition is small or nonexistent, as the buying power often eclipses the ability of companies to satisfy it. The intellectual and technological capital from the previous cycle serves as indirect energy input (energy surplus) that drives progress and decreases entropy. The society moves toward democratization and equality. The system is not energy neutral

The second phase: As the manufacturing is scaled up in every sector due to demand, the market gradually saturates, and competition for customers comes to dominate. The system's energy balance is neutral. This is the start of the second phase of the economic cycle (B). Due to competition, differentiation of companies begins in earnest and the prices of goods and services diverges. Divergence in buying power increases economic inequality. The interactions among the system's constituents increase disorder (entropy).

Third phase: As the economy matures, the third phase of the cycle is characterized by entropy production (C). The phase is characterized by a shortage of raw materials, and social degradation as the economy overgrows its boundaries and destroys the environment that supports it. Companies unable or unwilling to innovate are forced into bankruptcies, leading to massive unemployment. The system's energy balance becomes tilted again (there is an energy shortage), and entropy increases as society moves toward chaos and economic breakdown. The economy is on an irreversible path toward a singularity that marks the end of the economic cycle. The accumulated anger, the dissatisfaction of the people leads to uprisings, revolutions, and chaos. Today the world economy is kept humming through continuous intervention by major governments. Can these interventions avoid chaos, or just postpone it? The answer to this question and lots of other information about social changes can be found in the third chapter of my book, The Science of Consciousness.

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