Wednesday, January 6, 2010

Entropy and free trade

Is it possible to use entropy as an analogy to free trade? Contrary to intuition, maximum entropy is not totally free trade but but some point between free trade and autarky (and perhaps speculatively close to autarky itself).

This analogy is used to illustrate why free trade is not a stable equilibrium. (As free market liberals would say - if free trade were so great we'd already be there. There would be no need for the WTO.)

1. Energy has to be expended to bring the world closer to free trade. If this energy is insufficient the trading system would tend toward autarky.
2. Free trade cannot spontaneously happen. Work is required to achieve it.
3. The energy/work that is applied to achieving free trade can dissipate quickly into a lot of hot air.

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