The Dynamic Structural Disequilibrium Economy: A Holistic Model of Inequality, Value, and Systemic Convergence

*Fernando Miranda Abaunza^[Independent Researcher.
*Email: *Fermiraba2790@gmail.com*
* WhatsApp: *+505 8190 9441*
* LinkedIn: *www.linkedin.com/in/fernando-miranda-ba2b44157*

*date: “Working Paper — 2025”

Author’s Reflection

This work was not born from the desire to construct one more model,
but from a deeper necessity: to reconcile the language of economics
with the lived experience of imbalance.
I have tried to build a framework where mathematical structure and
moral insight are not adversaries but mirrors of one another.
The Dynamic Structural Disequilibrium Economy (DSSDE) is,
in this sense, a bridge — between the measurable and the meaningful,
between equations and existence.

I do not pretend to offer certainty.
What I seek is to recover the dignity of doubt,
the space where economics becomes again a human science:
a way of understanding how inequality, entropy,
and the search for coherence define the destiny of societies.

Abstract

This paper introduces the Dynamic Structural Disequilibrium Economy (DSSDE),
a theoretical and computational framework that integrates macroeconomic disequilibrium,
inequality endogeneity, and the dynamics of systemic convergence.
Building on Keynesian, structuralist, and post-Keynesian traditions,
the model formalizes how inequality, monetary asymmetries, and financialization
interact to shape production, investment, and social stability.

Unlike traditional Dynamic Stochastic General Equilibrium (DSGE) models,
the DSSDE framework assumes persistent disequilibria, endogenous adjustment,
and non-linear feedbacks between capital accumulation, productivity,
and distributive structures.

The paper develops a set of axioms, structural equations,
and “golden rules” of convergence under conditions of dynamic imbalance.
Simulations illustrate two distinct evolutionary paths:
(1) a normal path, in which inequality rises and productivity stagnates; and
(2) a steady-state path, where structural policies — progressive taxation,
mission-driven investment, and dual interest-rate regimes — restore convergence
between savings and investment.

Beyond its mathematical formulation, the paper also explores
the political-economy and existential implications of the current order:
the erosion of dignity, the loneliness crisis,
and the reduction of human value to capital ownership.
The DSSDE thus serves as both a macroeconomic model
and a moral critique of late capitalism.

Keywords: Inequality, Disequilibrium, Structural Macroeconomics,
Political Economy, Post-Keynesian, Dynamic Simulation, Systemic Convergence `

Introduction

Over the last half century, the global economy has evolved into a system characterized not by equilibrium but by structural imbalance. The very assumptions of the neoclassical paradigm—perfect markets, representative agents, and rational expectations—are increasingly detached from observable dynamics.
As heterodox economists such as Minsky (1986), Kaldor (1966), and Stiglitz (2012) have shown, capitalism is inherently unstable, marked by endogenous cycles, inequality feedbacks, and systemic asymmetries in power and information.

The current paradigm of economic modeling, dominated by Dynamic Stochastic General Equilibrium (DSGE) frameworks, assumes a self-correcting system in which markets clear through price adjustments. However, empirical evidence after the global financial crisis of 2008 suggests the opposite: markets do not necessarily converge to equilibrium; they often reinforce divergence (Keen 2011; Piketty 2014).
In this context, the present work proposes an alternative: the Dynamic Structural Disequilibrium Economy (DSSDE),
a model that recognizes disequilibrium as the natural state of economic systems and seeks to formalize its mechanisms of adjustment and persistence.

The DSSDE framework extends the structuralist vision of Latin American economists such as Prebisch (1950) and Furtado (1964), combining it with post-Keynesian principles of effective demand and with recent advances in complexity economics. It posits that inequality is not an outcome variable but a structural parameter that influences the very coefficients of production—capital elasticity, labor elasticity, and total-factor productivity. This contrasts with conventional models that treat inequality as an afterthought, separate from the growth mechanism.

Furthermore, the model recognizes the asymmetric nature of global finance: capital mobility, speculative flows, and monetary hierarchies determine national vulnerabilities.
Following insights from Reinhart & Rogoff (2009) and Rodrik (2011), the DSSDE treats financial instability as a systemic feature of the global order, not an exogenous shock.

At its core, the DSSDE is both an analytical and philosophical project. It aims to reconnect macroeconomic modeling with the reality of human experience.
The collapse of full-employment capitalism, the erosion of social reciprocity, and the rise of loneliness as a macro-social pathology (Murthy 2023) indicate that the current economic system has not only lost balance but also meaning.

Therefore, this paper proposes a new synthesis: a model in which disequilibrium is not an error to be corrected but a dynamic to be understood—where policy is not optimization under constraints but structural design under moral responsibility.

Theoretical and Epistemological Foundations

From Equilibrium to Structural Disequilibrium

The traditional economic paradigm assumes that markets, if left free, naturally clear.
This assumption, formalized by Walras’s Law, implies that any excess demand in one market is offset by excess supply in another, leading the system toward equilibrium (Walras 1874/1954).
Yet, as Keynes (1936) argued, real economies do not behave like closed algebraic systems: aggregate demand may chronically fall short of potential output; investment decisions are driven by expectations; and uncertainty is radical rather than probabilistic.
Disequilibrium, therefore, is not a temporary deviation—it is the structural condition of capitalism.

The Dynamic Structural Disequilibrium Economy (DSSDE) begins where equilibrium ends.
It assumes that markets continuously generate imbalances through differential accumulation, technological asymmetries, and unequal bargaining power. As Kalecki (1943) demonstrated, profit shares depend not only on productivity but also on the political strength of workers and capitalists. When inequality rises, the capacity of demand to sustain growth weakens, producing feedback loops of stagnation and concentration. Disequilibrium is thus not merely cyclical; it is self-reinforcing.

Value, Power, and the Endogeneity of Production

Classical economists—from Smith to Marx—viewed value as arising from production and labor.
Smith (1776/1976) located value in the division of labor and the productivity it enabled, while Marx (1867/1990) defined it as a social relation embedded in power structures.
In the modern era, neoclassical theory replaced this relational conception with a functional one, identifying value with marginal utility and equilibrium prices.
The result was a de-politicization of economics—a view of markets as neutral mechanisms rather than arenas of power (Fine & Milonakis 2009).

The DSSDE reinstates value as an emergent property of structure and power. Production coefficients are not constants but functions of distributive asymmetries.
When inequality \((\eta)\) rises, the elasticity of capital \((\alpha)\) and labor \((\beta)\) adjust downward, reflecting the erosion of cooperative efficiency.
Total-factor productivity \((A)\) becomes endogenous to social cohesion:

\[ A_t = A_0 e^{-\lambda \eta_t}, \]

where \(\lambda>0\) represents the entropy of inequality. In this sense, value is not an intrinsic property of goods but a measure of systemic coherence—the capacity of a society to coordinate its productive energies without exclusion.

Money, Financialization, and Hierarchy

Money, within this framework, is not a neutral veil but a hierarchical claim on value.
The post-Bretton-Woods order replaced gold convertibility with what Hudson (2003) calls credit imperialism: a system where the dollar’s dominance allows the United States to sustain external deficits financed by global demand for safe assets.
Following Minsky (1986), the DSSDE treats financial stability as inherently fragile—periods of calm breed complacency, leverage, and eventual crisis.

Financial deepening creates an illusion of abundance.
The velocity of money in the real economy \((V_R)\) declines even as the velocity in financial circuits \((V_F)\) accelerates, yielding \(V_F \gg V_R\). Liquidity thus accumulates in asset markets rather than in productive investment, amplifying wealth inequality (Piketty 2014) and detaching financial returns from real productivity.

Inequality as a Structural Parameter

In the DSSDE model, inequality is both cause and consequence—a dynamic state variable that modifies the production function itself. The higher the inequality, the lower the effective contribution of both capital and labor, as coordination costs, rent-seeking, and social fragmentation rise.
This endogeneity transforms inequality into a macro-thermodynamic variable: it increases systemic entropy and reduces potential output.

This approach aligns with recent structuralist and post-Keynesian literature emphasizing that inequality depresses aggregate demand and long-term growth (Galbraith 2012; Stockhammer 2017).
Yet it extends beyond demand: inequality reshapes the supply side by altering technological diffusion, institutional trust, and collective learning capacities.

The Moral and Existential Dimension

Beyond its quantitative implications, inequality corrodes meaning. The rise of loneliness economies—where individuals internalize market competition as self-valuation—represents the psychosocial expression of structural disequilibrium.
When value is equated with capital ownership, human beings become units of return rather than subjects of purpose.
As Murthy (2023) notes, the loneliness epidemic in advanced economies is not merely a health crisis but a reflection of social disintegration.

Therefore, the DSSDE also functions as a critique of political economy in the classical sense.
Following Polanyi (1944/2001), it contends that markets, when disembedded from social norms, generate moral and existential instability.
Restoring systemic balance requires not merely fiscal or monetary adjustments but a re-anchoring of value in reciprocity, cooperation, and dignity.

The Dynamic Structural Disequilibrium Framework (DSSDE)

The Dynamic Structural Disequilibrium Economy (DSSDE) consolidates the preceding conceptual arguments into a formal and computable model. Its purpose is to bridge the moral critique of inequality with an algebraic structure capable of dynamic simulation.
Unlike the DSGE family, the DSSDE does not converge through market clearing but through feedback mechanisms in quantities and parameters.

Axiomatic Foundations

The framework rests on four foundational axioms, extended through structural relations (A1–A12) that define a discrete-time dynamical system.

Axiom 1 — Macro Identity

\[ Y_t = C_t + I_t + G_t + NX_t \] Output equals the sum of consumption, private investment, public expenditure, and net exports.

Axiom 2 — Dual Monetary Compatibility

\[ M^R_t V^R_t = M^F_t V^F_t = P_t Y_t \] where \(M^R, M^F\) are real and financial money supplies and \(V^R, V^F\) their respective velocities.
This dual form extends the quantity theory of money (Hudson 2003).

Axiom 3 — Endogenous Production

\[ Y^{pot}_t = A_t K_t^{\alpha_t} L_t^{\beta_t} \] with variable elasticities influenced by inequality entropy.

\[ \alpha_t = \alpha_0 (1 - a_H H_t), \qquad \beta_t = \beta_0 (1 - b_H H_t) \] For simulation, one may adopt standard calibration values from the literature:
\(\alpha_0 = 0.33\) (Prescott, 1986; Rodrik, 2011),
\(\beta_0 = 0.60\) (Solow, 1956; Kaldor, 1966).

Axiom 4 — Persistent Disequilibrium

Markets exhibit permanent excess demand or supply.
Quantities adjust adaptively: \[ Y_{t+1} = Y_t + \theta_Y (AD_t - Y_t) \] where \(AD_t = C_t + I_t + G_t + NX_t\)
and \(0 < \theta_Y \le 1\) is the adjustment coefficient.


Structural Relations (A5–A12)

A5. Functional Income Shares \[ \omega_t = \Omega(\eta_t), \qquad \pi_t = 1 - \omega_t \] where \(\omega\) is the wage share, decreasing with inequality.

A6. Consumption Function \[ C_t = c_0 + c_1(1-\tau_t)\omega_t Y^{pot}_t + c_2(1-\tau_t)\pi_t Y^{pot}_t, \quad c_1>c_2 \]

A7. Investment Function \[ I_t = i_0 + i_1 \pi_t Y^{pot}_t - i_2 r^R_t \] representing profit-driven investment offset by the real rate of interest.

A8. Dual-Rate Monetary Policy \[ r^F_t = r^R_t + \mu \] with \(\mu\) the financial wedge (macroprudential instrument).

A9. Progressive Taxation and Countercyclical Expenditure \[ \tau_t = \min\{1,\max[0,\tau_0 + \tau_\eta(\eta_t-\bar{\eta})]\} \] \[ G_t = G_0 + g_Y\left(-\frac{\widehat{Y}_t-Y^{pot}_t}{Y^{pot}_t}\right) \] Adaptive expectations evolve as: \[ \widehat{Y}_{t+1}=\widehat{Y}_t+\kappa(Y_t-\widehat{Y}_t) \]

A10. Capital and Labor Accumulation \[ K_{t+1}=(1-\delta)K_t+I_t, \qquad L_{t+1}=(1+n)L_t \]

A11. Dual Velocities of Money \[ V^R_{t+1}=V^R_t+\phi_1\frac{AD_t-Y_t}{Y_t}-\phi_2 H_t \] \[ V^F_{t+1}=V^F_t+\psi_1(r^F_t-r^R_t)+\psi_2(\pi_t-\pi^\ast) \] Typical simulation parameters from the literature: \(\phi_1, \phi_2, \psi_1, \psi_2 \in [0.05,0.20]\).

A12. Inequality Dynamics \[ \eta_{t+1} = \Big[\eta_t + \gamma_\pi(\pi_t-\pi^\ast) + \gamma_V\left(\frac{V^F_t}{V^R_t}-\chi\right) - \gamma_T \tau_t - \gamma_G G_t \Big]_{[0,1]} \] where \(\gamma_\pi,\gamma_V,\gamma_T,\gamma_G\) govern the sensitivity of inequality to each feedback. Empirical studies suggest values between 0.05 and 0.15 ensure stability.


Suggested Simulation Exercise

Researchers can replicate the dynamics above using R or Python with standard macroeconomic calibration.
The simulation may initialize with \(K_0=5\), \(L_0=1\), \(A_0=1\), and draw on canonical parameter ranges from Solow (1956), Prescott (1986), Rodrik (2011), and Mazzucato (2021).

Key parameter ranges for exploratory simulation:

Parameter Typical Range Interpretation
\(\alpha_0\) 0.30–0.35 Capital share
\(\beta_0\) 0.55–0.65 Labor share
\(\lambda_H\) 0.1–0.3 Entropy drag on TFP
\(\gamma_\pi,\gamma_V\) 0.05–0.15 Feedback intensities
\(\tau_\eta\) 0.1–0.4 Fiscal progressivity

These benchmarks can be used for illustrative nonlinear simulations that trace two evolutionary paths:
a “normal” path of rising inequality and stagnation, and a “steady-state” path of policy-driven convergence.


Econometric Falsification of the Entropy Hypothesis

The entropy-drag hypothesis is falsifiable.
Let income shares follow a log-normal distribution: \[ p_i \sim \text{LogNormal}(\mu_y,\sigma_y^2) \] and define normalized Shannon entropy: \[ H = -\frac{1}{\log N}\sum_i p_i \log p_i \]

Then the hypothesis test becomes: \[ H_0: \lambda_H = 0 \quad (\text{no entropy effect}) \] \[ H_1: \lambda_H \ne 0 \quad (\text{entropy affects productivity}) \]

The estimation can be implemented via nonlinear least squares or panel regression: \[ \Delta \ln A_t = g_A - \lambda_H H_t + \varepsilon_t \] where rejection of \(H_0\) under a log-normal income distribution confirms the existence of systemic entropy as a structural determinant of productivity decay.


In sum, the DSSDE formalization provides a tractable algebraic skeleton for a moral and political-economy critique of capitalism. It shows that inequality operates as both an economic variable and a thermodynamic constraint—translating social disintegration into productivity loss and systemic fragility.

Political Economy Critique and Existential Analysis

The Moral Architecture of Disequilibrium

The preceding algebraic formulation exposes an essential truth: economic disequilibrium is not a malfunction—it is the architecture through which power reproduces itself. The DSSDE therefore extends beyond mathematics. It is a critique of the ontological foundations of capitalism: how societies convert energy, intelligence, and creativity into hierarchical value structures that degrade cooperation.

As Marx (1867/1990) observed, the circulation of capital is a process of self-valorization—money that transforms labor into an abstract substrate of accumulation.
In the twenty-first century, this process has achieved its purest form: digitalization and financialization have turned labor, attention, and even emotion into quantifiable streams of data.
Disequilibrium has become the modus operandi of accumulation itself.

The entropy of inequality captures this transformation in measurable form.
As social differentiation increases, informational complexity grows, but not all information remains productive. Noise replaces signal; competition substitutes coordination. The apparent sophistication of modern economies hides a deep structural incoherence—a state where the expansion of value outpaces the capacity for shared meaning.

The Fallacy of Productivity

Contemporary policy debates obsess over “productivity decline.” Central banks, international organizations, and consultancies publish endless reports lamenting that “TFP growth has slowed.” Yet few ask why. The standard answers—insufficient innovation, rigid labor markets, technological plateau—treat productivity as an autonomous force, independent of social structure.

The DSSDE proposes a reversal: productivity does not fall because technology stagnates; it falls because social entropy rises. When inequality expands, the coherence of the production system deteriorates.
Firms hoard profits, households reduce consumption, innovation becomes defensive, and finance substitutes industry. This mechanism explains why nations with moderate inequality tend to exhibit higher technological diffusion and resilience (Rodrik 2011; Stiglitz 2012; Piketty 2014).

The model therefore bridges two domains usually treated separately: the technical and the moral. It asserts that economic efficiency is inseparable from social justice. An unequal society may appear efficient in the short term, but its long-term entropy inevitably erodes the very foundations of accumulation.

The Political Economy of Loneliness

Inequality is not only a material condition; it is an existential state. It produces what might be called the political economy of loneliness: individuals internalize market competition as self-worth, and failure becomes a private moral defect rather than a structural outcome. This shift from solidarity to self-surveillance marks the transition from capitalism as a mode of production to capitalism as a mode of being.

The loneliness epidemic (Murthy 2023) thus mirrors the entropy identified in the DSSDE equations. Just as rising entropy lowers productivity, social atomization lowers collective intelligence. The loss of interpersonal reciprocity translates into lower systemic innovation, weaker institutions, and fragile democracies.

Inequality, Innovation, and Divergence

Empirical evidence supports the claim that inequality and innovation are inversely related.
Countries with higher Gini coefficients exhibit slower productivity growth, lower patent intensity, and higher volatility in capital flows (OECD 2022; UNDP 2023).
The causal chain is straightforward in the DSSDE logic: as inequality increases, social entropy rises; as entropy rises, total-factor productivity \(A_t\) falls; as \(A_t\) falls, technological diffusion slows, reinforcing inequality—a vicious circle of divergence.

In this sense, the DSSDE unifies the macro and the micro: the algebraic degradation of parameters \((\alpha,\beta,A)\) mirrors the erosion of trust, empathy, and cooperation at the human level. It reveals that economic decline and existential despair are two expressions of the same structural entropy.

Toward a Moral Macroeconomics

The conclusion is unavoidable: restoring balance requires not only policy instruments but moral reconstruction. A moral macroeconomics must integrate ethics into institutional design—embedding reciprocity, solidarity, and sustainability as functional parameters of long-run equilibrium.

Following Polanyi (1944/2001), the market must once again be re-embedded in society. Fiscal and monetary policy are necessary but insufficient. The deeper reform lies in redefining value itself: from a metric of extraction to a measure of coherence, from profit maximization to systemic integrity.

The DSSDE is not merely a technical model; it is a call to rethink what it means for an economy to be “healthy.” Health is not equilibrium of prices but equilibrium of purpose. When the economic system ceases to generate meaning, no quantity of data, capital, or AI can restore stability.

Implications for Artificial Intelligence and Data Systems

In the age of AI, data itself becomes a form of capital. Algorithmic optimization mirrors the same structural bias: it amplifies existing inequalities, codifies preferences of power, and automates exclusion.
The DSSDE framework provides a warning:
without moral feedback loops, digital economies will reproduce the same entropic decay observed in financial capitalism.

A truly intelligent system—human or artificial— must operate on the principle of coherence rather than control. The purpose of analytics and machine learning should not be to predict consumption but to enhance coordination. This insight links the technical practice of data science with the ethical imperative of political economy.

In this respect, your role as a data analyst, engineer, or policymaker is not peripheral to the moral debate—it is central. Every data architecture is a moral architecture, and every algorithm is an act of design that either amplifies or mitigates entropy.

Conclusions and Research Agenda

1. Rethinking Disequilibrium

The Dynamic Structural Disequilibrium Economy (DSSDE) reframes macroeconomics as a science of imbalance. It demonstrates that inequality, entropy, and productivity are not independent variables but components of one structural cycle. Disequilibrium is not an anomaly to be corrected; it is the expression of an evolving social metabolism. Recognizing this is the first step toward designing institutions capable of self-stabilization.

By formalizing inequality as a state variable that degrades productive parameters, the DSSDE offers a parsimonious explanation for the long-observed paradox of modern capitalism: technological progress without shared prosperity. The model shows how the erosion of social cohesion translates into the loss of productive coherence.

2. Policy Implications

The practical implications are profound.

  1. Fiscal and distributive policy must target entropy, not merely income. Progressive taxation, social investment, and mission-oriented programs (Mazzucato 2021) act as entropy-reducing mechanisms.
  2. Monetary architecture should adopt dual-rate or tiered structures, distinguishing between productive and speculative credit.
  3. Industrial strategy should emphasize innovation networks and cooperative ownership, reducing informational asymmetries that fuel systemic fragility.
  4. Data governance and AI must embed ethical feedback loops to prevent algorithmic amplification of inequality.

These are not moral luxuries; they are structural requirements for macroeconomic stability.

3. Empirical and Computational Extensions

Future research can proceed along three complementary lines:

  • Simulation and calibration. The difference-equation system (A1–A12) can be implemented in R, Python, or Julia.
    Using canonical calibration values— \(\alpha_0\approx0.33\), \(\beta_0\approx0.60\), \(\lambda_H\in[0.1,0.3]\), \(\gamma_\pi,\gamma_V\in[0.05,0.15]\)— researchers can replicate two archetypal regimes: a normal path of rising inequality and stagnation, and a steady-state path of convergence.
  • Econometric testing. The falsifiable entropy hypothesis (\(H_0\!:\lambda_H=0\) vs \(H_1\!:\lambda_H\ne0\)) can be estimated under log-normal income distributions using nonlinear least squares or panel data. Rejecting \(H_0\) confirms that entropy materially affects productivity.
  • Comparative institutional analysis. Cross-country studies can evaluate how differing social contracts modulate the entropy–productivity relationship.

These extensions transform the DSSDE from a theoretical construction into a reproducible research program.

4. Toward a Science of Moral Macroeconomics

Economics must once again become a moral science, not in the sense of preaching virtue, but in acknowledging that coherence, reciprocity, and dignity are productive forces. A society that erodes them will, sooner or later, erode its capacity to generate wealth.

The DSSDE thus invites economists, policymakers, and data scientists to view inequality as the thermodynamic cost of social fragmentation. Reducing that cost is not charity—it is efficiency. Entropy is the hidden budget constraint of civilization.

5. Final Reflection

The search for equilibrium has dominated economics for centuries. Yet equilibrium, as Polanyi warned, is a myth that conceals the violence of adjustment. True stability arises not from stasis but from dynamic balance— a living feedback between ethics and structure, between human intention and systemic design.

The Dynamic Structural Disequilibrium Economy is not an ending; it is a beginning. It sketches a path toward a discipline where mathematics and morality, data and dignity, belong to the same language.

Appendix

A. Reproducible Simulation Framework (R Shiny)

The DSSDE system (A1–A12) can be implemented as a dynamic simulation using R Shiny to visualize trajectories of output, inequality, and entropy over time.
The app allows users to vary structural parameters and policy instruments to explore nonlinear feedbacks and regime shifts.

Core parameters and controls:

Symbol Control Description Suggested Range
\(\alpha_0\) Slider Capital elasticity 0.30–0.35
\(\beta_0\) Slider Labor elasticity 0.55–0.65
\(\lambda_H\) Slider Entropy drag coefficient 0.10–0.30
\(\gamma_\pi,\gamma_V\) Sliders Inequality feedback coefficients 0.05–0.15
\(\tau_\eta\) Slider Fiscal progressivity 0.10–0.40
\(\mu\) Slider Financial–real interest gap 0.00–0.10

Output panels:

  1. Time-series plots of \(Y_t\), \(\eta_t\), \(\omega_t\), and \(A_t\).
  2. Phase diagrams (\(\eta_t\) vs. \(A_t\), \(V^F/V^R\) vs. \(Y_t\)).
  3. Policy dashboard displaying the entropy index and fiscal multiplier.

A minimal implementation is available in the accompanying files app.R and dssde_core.R, where all parameters are initialized with the canonical calibration values derived from Solow (1956), Prescott (1986), and Rodrik (2011).

Users can modify any coefficient, rerun the simulation, and export graphs for comparative analysis.
The code is open-source and designed for teaching, research, and policy experimentation.


B. Entropy Hypothesis Test (Econometric Specification)

The entropy-drag hypothesis can be tested econometrically using cross-country or panel data.

Let \(H_t\) denote normalized Shannon entropy of income distribution:

\[ H_t = -\frac{1}{\log N}\sum_i p_{i,t}\log p_{i,t}, \] where \(p_{i,t}\) are income shares drawn from a log-normal distribution: \[ p_i \sim \text{LogNormal}(\mu_y,\sigma_y^2). \]

Estimate the regression: \[ \Delta\ln A_t = g_A - \lambda_H H_t + \varepsilon_t, \] where \(A_t\) is total-factor productivity, \(g_A\) the baseline growth rate, and \(\lambda_H\) the entropy-drag coefficient.

Formally:

\[ H_0: \lambda_H = 0 \quad \text{(no entropy effect)} \] \[ H_1: \lambda_H \ne 0 \quad \text{(entropy degrades productivity)}. \]

Testing can be implemented via nonlinear least squares or generalized method of moments, using datasets from Penn World Table, OECD, or World Inequality Database. Under a log-normal assumption, the null and alternative hypotheses fall in a skewed probability distribution rather than a normal one, reflecting the empirical asymmetry of income data.

Rejection of \(H_0\) confirms that structural entropy has a statistically significant effect on productivity decline.


C. Structural Feedback Diagram (Minimalist, Black and White)

Figure A1 illustrates the feedback structure of the DSSDE. For clarity, it can be rendered in TikZ or any diagramming package using the following description.

Nodes:

  • Inequality \((\eta)\) – the initial condition and dynamic driver.
  • Entropy \((H(\eta))\) – transformation of inequality into systemic friction.
  • Production coefficients \((\alpha,\beta,A)\) – degraded by entropy.
  • Output \((Y)\) – aggregate result of productive coherence.
  • Policy \((\tau,G,\mu)\) – feedback mechanism to reduce entropy.

Arrows (causal direction):

\[ \eta \rightarrow H(\eta) \rightarrow (\alpha,\beta,A) \rightarrow Y \rightarrow (\tau,G,\mu) \rightarrow \eta. \]

Interpretation:

The loop represents a self-organizing, non-linear dynamic in which inequality raises entropy; entropy lowers productivity; and policy interventions can dampen or amplify this cycle depending on their moral and institutional design.

A minimalist TikZ implementation for rendering within the R Markdown environment is given below:


D. Notes on Replication

The complete R code, datasets, and supplementary documentation are available upon request. All parameters may be altered for sensitivity analysis. The simulation is designed to be falsifiable, educational, and extendable to agent-based or system-dynamics frameworks.

By integrating quantitative modeling with moral inquiry, the DSSDE appendix reaffirms that reproducibility in economics must include not only data transparency but also ethical transparency.

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