## Sunday, July 29, 2007

### Costs

Costs .

Andre Willers
25 July 2007
http://andreswhy.blogspot.com

Hi Aniki ,
Thank you for your email .
I hope this will make it bit clearer .

Synopsis :

Mercy and Entropy .
Mercy is built-into an entropy system by definition of semi-closed systems . See below.

Negative Entropy (ie decreasing disorder) is a definition of living systems .
It means that things are not conserved .
It also means that mercy (ie non-quid-pro-quo) systems like Christianity or Islam are more accurate reflections of reality than Karma and Double Book-keeping .

Costs should be mined , not minimized .
The closer stakeholders are bound , the greater the long-term stable profit for everybody .

This is generally true as long as the as the cost residue is greater than 3 degree Kelvin.

Costs Discussion :

Profit = Sales – Cost

The metric (Energy , Money ) is defined by the organism or society , but an energy metric underlies any human enterprise , since they are in a physical universe . (ie dollars or love count , but ergs are the king of all .)

Entropy is the degree of disorder .

The Laws of Thermodynamics is the statistical treatment of a large number of similar elements ( eg atoms , molecules , people ) .

The Laws of Thermodynamics .

1. Something is conserved through transitions .
Energy (in particles) , money (in people) are conserved . (First Law of Thermodynamics)

2 . At every transition/transaction , some energy / money gets dissipated . (Second Law of Thermodynamics)
These are heat loss , costs . (Commission , manufacturing costs ,etc)

3 . At every transition/transaction , some energy / money gets dissipated into a larger , less usable pool . (Third Law of Thermodynamics) . Also known as Entropy .

Disorder increases from the viewpoint of source of the transaction , since the dissipated energy/money cannot be easily be rounded up to work at the same level again . Any attempt to do so will incur additional costs .

Closed Systems

The above arguments hold for entirely closed systems like a Universe .

Your body can go into a higher state of order by excreting stuff in an even higher state of disorder than the stuff it ingested .

Since life by definition is more order (ie less entropy) , it can only achieve this by excreting greater disorder . Pollution is a marker of life .
Think Waste Management Companies .

One organism’s garbage is the next organism’s food . Another way to put it , is that garbage creates niches for semi-open organisms .

In a perfectly efficient Universe , cascades of semi-closed evolutionary organisms reduce the waste to a minimum .

The only garbage left would be random heat energy .

Your attention is drawn to the background heat-radiation throughout the Universe . This is about 3 Kelvin .

(Note that this is near to fluctuating possibilities for really , really large Bose-Einstein condensates . An ideal candidate for dark matter and energy , especially since it would be intelligent . Ho-ho-ho!)

Time is a characteristic of a semi-closed system .
Ie of imperfect information transmission , hence increasing entropy .

How close is the analogue between Physics and Economy really?

From the above it is quite close .
Hence Econophysics . Goldratt’s work is a good example .

1 . First Law of Thermodynamics (Conservation)

Creating or destroying money seems arbitrary , but states that have tried it have seen their arse . Zimbabwe is but one in line stretching back into history . The reason is that any monetary unit is basically coupled to food production . And this is firmly tied to Energy conservation systems .

2. Second Law of Thermodynamics (Energy never gets perfectly transformed)
This is one of the major driving forces in semi-closed evolutionary systems . An eco-web is stronger because the primary users of the energy chain leave enough for the rest down the chain .

There are actually examples of where too efficient primary users went extinct because they did not leave enough for the web of life dependant on their leavings .

Too efficient lifeforms :
Three examples:
Certain ungulates , whales , humans .

Ungulates on plains like prairies , steppes . The grass requires their dung . But localized evolutionary pressures blows bubbles of high-efficient grass usage . Ungulate numbers explode , as does their predators , but at the next climate downturn the grass dies faster than before . The number of increasingly desperate predators decrease slower than the grass-dieoff . The prey species can easily go extinct , as it is ground between the two .

Ho-ho-ho! Whales are the baddies !
The oceans are normally considered exempt from such pressures because they are so large . But nothing is too large for evolutionary positive feedback systems .

The layer of ocean passing enough light to enable plankton to grow is on the surface about 200 ft deep .Large ,but not infinite . Plankton fixes CO2 and produces oxygen . Large whales eat plankton , but their excrement and remains cannot replace what they eat .

A warmer planet favours more whales (large , shallow continental shelves . Fertile , ice-free arctic and antarctic seas .) Large number of whales would evolve to engender this (a variation of daisy planet)

Krill eat plankton . Some large whales eat krill only .

The result is that the biospheric CO2 and O2 levels fluctuate according to whale population in a chaotic fashion .

About 55 million years ago (when they grew large from a hippo-like landdweller ) they had undisputed ownership of the seas . Hence the concentration of plankton eating herbivores . They got enough of a headstart that they grew large enough quickly enough to obliterate predators .

They also ate enough plankton to trigger a large increase in atmospheric Co2 . The temperature rocketed . (The 55 MY temp peak)

A typical predator-prey fluctuation between plankton-eating and krill-eating whale populations drove the atmospheric CO2-O2 balance for the next 50 MY .

It is no wonder that orcas and dolphins are so friendly to humans . From their viewpoint , anything is better than the Evil Empire of the Whales.

Whales are busy exterminating humans (whom they see as a obnoxious form of krill eater.) . Humans are not even aware that they are at war with a lifeform that has seen off every competitor for the last 60 MY

Their preferred warfare form is climatic instability . The question then is why the climatic stability from about 12 000 BC occurred .

Your attention is drawn to the putative small comet impact on North America about 12 900 years ago . See New Scientist 26 May 2007 “Firestorm from space wiped out prehistoric Americans.”

The result would have been a massive extinction of whales in the northern atlantic and northern pacific , as well as large-mammal extinction in north America . The Clovis extinction in north America .

The resulting climatic stability led to usable agriculture , which is now being eroded by global heating by human CO2 and reestablishing of whales .

Note that the little ice age was concurrent with drastic decrease in whale numbers due to whaling .

Whales are the locusts of the Seas .

3. Third Law of Thermodynamics : Entropy (Time)

Time :
If the profit for a certain length of time is less than zero , the system dies .
If you don’t eat , you die .
Surplus profits can be stored . (Fat , bank accounts)
Surplus production can be stored . (muscle , cars , etc)
Surplus costs can be stored .( Underpaid workers

The equation then becomes :
Profit(t) + ProfitStored = Production(t) + ProductionStored – ( Cost(t) + CostStored))

This must be seen in a competitive environment .

Many Agents with these characteristics behave in certain clearly defined statistical ways . eg Economics , econophysics , etc

It is immediately clear why inefficiency is inherent in large organizations , whether they are composed of individuals or cells . It is a long term survival mechanism .

Think fat .

How much fat does a time-bound organism , society or structure need ?
Luckily we know that the need to infinity is 1/e ~ a third . (e=2.718…)
As a rule of thumb , the further the deviation from this 1/e rule , the shorter the life-span of the entity . It is also non-linear .

When you mine your Cost structure for increased profits , make sure that the resultant residue has the fractal characteristic of 1/e as fat .

Conclusion :
Costs (and this includes people) , should be seen as a profit resource .

Andre