Andrew Sheng is a former central banker and financial regulator, currently distinguished fellow at the Asia Global Institute, University of Hong Kong.
How do you explain what Charles Dickens called “the best of times” and “the worst of times”? We live with massive societal inequalities. The rich have never had it so good, and the middle class has rarely been so discontented.
We are suffering through years of heatwaves, and wars in Europe and the Middle East. Stock markets are at record highs while bond markets are creaking under rising interest rates. Are we seeing the effects of imperial overreach or simply overstretched asset valuations?
There is a consistent theme across centuries and civilisations. Societies thrive when their values, economies and institutions remain anchored to physical reality, but they decay when elites drift into self-referential systems of paper wealth, prestige and power.
Climate change, fossil fuels, water, food and energy are anchored physically to the laws of thermodynamics. Meanwhile, human perception and agency – the willingness to intervene in human affairs and nature – can be detached from reality by ego, hubris and euphoria.
There are three laws of thermodynamics. First is the law of energy conservation: energy cannot be created or destroyed, only transformed. The second involves entropy: in any spontaneous process, the total entropy, or disorder, of the universe will always increase. The third involves absolute zero: as the temperature of a system approaches absolute zero, the entropy of the system approaches a minimum constant value. This means absolute zero cannot be reached.
Strictly speaking, the laws of thermodynamics do not apply to human social systems. Human perceptions or valuations can be inflated or understated, while human agency changes the game. Just as artificial intelligence models hallucinate, people’s perception or valuation of assets goes from mild inflation to periodic hallucination and great crashes.
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US slaps new tariffs ranging from 10-12.5% on 60 economies
