In physics, when two objects are brought into contact heat flows from the hotter to the colder object until the temperatures are equal, after which point there is no further change. This is known as the Second Law of Thermodynamics the most inviolable law in science.

Thermodynamics explains the weather, where temperature and pressure differentials cause storms. They explain chemical reactions, which are thermodynamic cooling processes. And they explain economics, where price, wage, or return differentials lead to the arbitrage behavior that moves prices and changes the allocation of resources. Our Shift Happens methodology is nothing more than a restatement of the Second Law of Thermodynamics in the language of economics and portfolio analysis.

Thermodynamics deals with systems, not with particles. Recent work demonstrating the formal equivalence of far-from-equilibrium physics and irreversible (entropy producing) thermodynamic processes has led to a fuller understanding of the situations in which systems fail to adjust smoothly to change. These situations of system failure (blackouts) help us understand recessions, depressions, currency collapse, credit-market failure, and other discontinuous events in economics. Ironically, Irving Fisher, Knut Wicksell, and John Maynard Keynes studied these topics a century ago.

For a more detailed discussion, see Supply-Side Thermodynamics

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