Friday, November 21, 2008

No. 0046 - Engineers on Wall Street

Let me try to say this as tactfully as possible; I think all those who works at Wall Street should be fired and replaced with engineers, period! The economy is in trouble, we hear about it everyday; shrinking 401k's, shrinking job markets, shrinking GDP and etc. People are pointing fingers at each other playing the blame game. In own opinion, I couldn't really find anyone else to blame besides the greed of Wall Street and those who works there. Let me explain to you why I think an engineer (especially ME, AERO, Civil and maybe EEs) would do a better job and we wouldn't have been in this whole mess in the first place if engineers were to call the shot.

My fellow engineering friends or those who have taken more than 2 quarters of college physics can resonant with me on this one. You see, in the engineering field, we all have been exposed to this topic call Thermodynamics. Yes, the dreaded Thermo! I personally never really excelled or found interest in this branch of my ME curriculum , nevertheless, as a helpless engineering student like I was back then, this stuff was beaten into my head. As some of you may painfully recall the fundamental laws of thermodynamics. Let me explain to you how understanding these laws could have prevented us from this whole economic mess.

The first law of thermodynamics pretty much illustrates the fact that energy may be manipulated in any shape or form we want in a closed system, but it all adds up in the end meaning the end states remain fixed. Does Conservation of Energy ring a bell? Energy is neither created or destroyed, that simple. In this economic turmoil that we are living in, credit is rapidly disappearing and prices of things are falling. Why? Because the economy has violated the very fundamentals of the first law. I never quite understood the phrase "money breeds money" because the only way that this could happen is to have someone infusing cash into the system. Not unless we started doing business with the Martians or aliens from out of space, I believe an economy is a closed system. I don't care how global this economy is, it is one giant CLOSED system. Money ought to just flow around and not spontaneously reproduces itself. I don't care how or what kind of business transactions we do, or what "credit default swaps" are performed or however complicated a business deal gets, the ends state is the same meaning if there is $100 running around out there in the economy, then $100 it remains, not $1000 all of a sudden in ten years.

Second law of thermodynamics has to do with entropy. A standard high school definition is that entropy is the measurement of chaos or disorder in the world and that it is constantly increasing (I suppose that is analogous to the way the economy is spinning out of control). For as ominous as that may sound, there is actually more to it. The second law more or less points out how things spontaneously move or go the direction they do. For example, heat transfer naturally goes from hot to cold or pressure always goes from high to low. The key take away point from the second law is its opportunity to do work as energy is spontaneous flowing around. For example, the released pressure may be used to blow into a turbine to do work, or heat released from a hot source could be used to heat the water to create steam power. Same thing with money in the economy, its health (work) is predicated by its flow or liquidity. Oh by the way, one more minor detail about the second law, it is only valid as long as the CONSERVATION OF ENERGY IS SATISFIED!!! Once again, where did all these extra money (aka credit) came from??

As I refer back to my good old trusty thermo book, it actually mentions in a chapter that these theories has been applied to other fields such as psychology and ECONOMY! Now I'm really scratching my head, where are all the engineers on Wall Street? Probably next to none, but instead they are replaced with the type of people that don't have classes on Fridays also known as Cal Poly Business Majors! (Shirk-Dog, this is a satirical piece, you know I love you like a brother man). Am I bitter you may ask? Yeah, I would say. I mean how can I not be when I was drudging my way to my Friday 4 pm continuum mechanics "beat down" midterm when all the business majors are half drunk already. As you can tell by now, I really don't like business people.

Oh and by the way, while I'm on a rant, another profession that I despise - statisticians. Don't "Student-T" me?!?! I save this one for a later day.