Physics may seem an unlikely place to explore how economic downturns occur, but new research from Duke University argues that recessions unfold almost as a natural feature of physics.

“This theory sheds light on common questions such as whether or not history repeats itself or if the economy is stable or not,” they explain. “These are questions that can find answers from physics. There exist universal mechanisms that give rise to laws governing the growth of economics. And the answer to sustaining that growth lies in innovation.”

The research combines ideas from a couple of previous studies that examined the prevalence of S-curves in a wide range of life circumstances.  For instance, the authors highlight how spilled milk also follows this slow-fast-slow pattern, but it can also be seen in the adoption of new technology, the growth of populations, chemical reactions and the spread of new ideas.

Fueling growth

The researchers began to explore whether there was a connection between fuel consumption and a nation’s gross domestic product.

“Pushing requires power, and power requires fuel, whether it is food that powers the human body or gasoline that powers cars,” they explain. “And the amount of fuel consumed by a nation is directly related to its economic growth. So really, physics and economics are two sides of the same coin.”

The latest work exchanges the concept of energy with that of economics, with petrol swapped for money, savings, time and bubbles.  The study shows that when economies produce excess power, and subsequently lend it to others as money, this flow of money follows a similar pattern to the flow of power.

“The ability to save and lend, for money to flow between neighbors across the globe, is a chain reaction,” the researchers say. “Thus economic development as a whole is a chain reaction, and the physics of that phenomenon is detailed in this paper.”

S curve

The s curve of economic productivity appears to jar with the linear curve of investment in a commodity.  To begin with, the s curve sits below the line, with any investment more speculative.  As time passes, however, the s curve begins to move above the investment line, after which economic prosperity is generated.  As the usefulness and adoption of that commodity or idea wanes, however, the S curve reaches a plateau, after which it falls below the investment line again.

It’s at this point, that the authors believe that economic downturns typically occur, although the they do caveat there theory by suggesting that while this pattern is inevitable for anything that is bought and sold, it doesn’t have to result in the economy tanking.

“Everything that spreads has a finite life, and if you don’t do something to postpone that precipice, then you will fall over the cliff,” they conclude. “But a market that is free is capable of generating new S curves on top of new S curves. So as long as people are being innovative and creative and bringing large enough new S curves to the picture, the general trend of economic growth can continue.”