Author Topic: Is inequality inevitable? A Scientific American article.  (Read 7252 times)

John Galt incarnate!

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Re: Is inequality inevitable? A Scientific American article.
« Reply #50 on: December 31, 2019, 02:06:56 PM »
If total equality of outcome is inevitable, there is no point in doing anything other than exactly what strikes your fancy at any given moment.  You will get the same benefits and treatment as any other person regardless of your ability or contributions.  If you hurt yourself, you will get more benefits, if you help yourself, you will get fewer benefits.

Therefore, at least some inequality out outcome is inevitable in a functioning society.



No commonsensical person could disagree.


Given the normal distribution of human traits, aptitudes, and other variables natural equality of outcome is an unqualified  unreality.

Contrived equality of outcome in a manifest injustice because it nullifies equality of opportunity as happened to Ricci, the lead plaintiff in  Ricci v. DeStefano (2009).

The Court found for Ricci and the other plaintiffs thereby undoing the injustice of a scheme that was hatched to contrive equality of result.
« Last Edit: December 31, 2019, 02:10:29 PM by John Galt incarnate! »

robincanada

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Re: Is inequality inevitable? A Scientific American article.
« Reply #51 on: December 31, 2019, 03:28:03 PM »
It follows then, that economic equality is incompatible with the  "Happiness" that is "among" "certain unalienable rights" of the Declaration of Independence.

Declaration of independence does not talk about any right to happiness, only "pursuit of happiness".

I read that as equality of opportunity, not outcomes.

If the pursuit of happiness was prevented, however, that would be contrary to the Declaration of Independence. Let's say A really wanted to achieve what D has, but did not even get the same opportunities as D did get handed over from his/her parents after all the estate taxes were virtually eliminated - then it could be argued THAT is against the declaration of independence.

There are many such situations where the "pursuit of happiness" is prevented. e.g. when Amazon has the clout solely due to it's size to cut special deals with cities, clout  it's smaller competitors lack - it also runs afoul of the "pursuit of happiness" clause in my opinion. All the farmer subsidies, big oil subsidies, lack of OTMR in cable - all of them and a lot more can fold into this umbrella, IMO...

Even equality of opportunity is completely impossible to achieve, and in my opinion undesirable. Part of the human struggle is to provide better opportunities for our progeny, in order for them to achieve their optimal fitness (to put it in evolutionary terms). On the other hand, the equality that is referenced in the Declaration of Independence refers to equality under God ("Laws of Nature and Nature's God"), and to equality under the laws ("Tyrrany"). It is very clear that the founders did not intend for equality of opportunity outside this scope.

When it comes to laws governing industries or corporations, government should implement and enforce laws that maximize the benefit to society as a whole (while ensuring individual rights are not trampled). Sometimes these laws will benefit these industries or corporations, and other times they will not, but government leaders should do their best to maintain zero conflict of interest so as to ensure society benefits, not themselves.

At the risk of going a little off-topic, I'm tempted to put this here.

It is difficult to determine if more, or less redistribution is good. Both approaches have merit. "Tough love" and "compassionate care" are BOTH valuable in different contexts.

Perhaps the best system is something that oscillates between two well defined boundaries of "more government" and "less government"?

In the context of the United States, when I think about it, FDR and Reagan-minus-his-racist-bs (he used to think of African's as monkeys, look up the audio tape) probably represent the acceptable boundaries.

I've not really thought through it. So feel free to poke any well deserved holes as you like in it.

One likely valid objection I can think of is one that some conservatives often raise - once government programs are instituted they are impossible to get away from.

The problem is the scale of government and monopolies.  A government for 300 million is bad.  Like for 30 million, 3 million and 300,000 too.

Line corporations.  Capitalism is good. Monopolies are terrible.  Globalism has all the terrible aspects, but the “good” aspects... like regulating the use of bunker oil on transport ships, never happens. 

Government itself is not bad.  But on a large scale it is.  The USA is about to go empire from Republic, and Nazi too. Because of it is too big.  Too powerful. 

scottish

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Re: Is inequality inevitable? A Scientific American article.
« Reply #52 on: December 31, 2019, 05:33:05 PM »
Here is a link to an intriguiging Scientific American article:

https://www.scientificamerican.com/article/is-inequality-inevitable/

There is a paywall. The article does not explain why in the transaction scenario, the winner in a transaction gets 20%* return, but the loser loses only 17%..

There is a known phenomenon in finance, that if your investments suffer a 20% fall, it will take more than a 20% rise to get back to where you were. In the transaction situation described in the article, if a player loses 17%, he will need slightly more than a 20% rise to get back to where he was.

It is also not clear to me why the economy needs to be seen as a mass of transactions.

What are your thoughts?

It looks like the 20% and 17% numbers were chosen specifically to give the house a small advantage.   If he had chosen 20% and 16%, then the bettor would have had the small advantage rather than the house.

The original paper is here  https://arxiv.org/pdf/1604.02370.pdf  if you want to see the mathematical details.

I find the conclusions unconvincing.    Based on this model, we're supposed to believe that inequality in society is due to a small bias in favour of the wealthy?   
 Doesn't this suggest that ability and discipline play no part in accumulation of wealth?     Maybe I'm reading to much into his conclusions, but to my point of view, this paper argues against Mustachianism!


ChpBstrd

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Re: Is inequality inevitable? A Scientific American article.
« Reply #53 on: January 01, 2020, 09:22:23 AM »
Here is a link to an intriguiging Scientific American article:

https://www.scientificamerican.com/article/is-inequality-inevitable/

There is a paywall. The article does not explain why in the transaction scenario, the winner in a transaction gets 20%* return, but the loser loses only 17%..

There is a known phenomenon in finance, that if your investments suffer a 20% fall, it will take more than a 20% rise to get back to where you were. In the transaction situation described in the article, if a player loses 17%, he will need slightly more than a 20% rise to get back to where he was.

It is also not clear to me why the economy needs to be seen as a mass of transactions.

What are your thoughts?

It looks like the 20% and 17% numbers were chosen specifically to give the house a small advantage.   If he had chosen 20% and 16%, then the bettor would have had the small advantage rather than the house.

The original paper is here  https://arxiv.org/pdf/1604.02370.pdf  if you want to see the mathematical details.

I find the conclusions unconvincing.    Based on this model, we're supposed to believe that inequality in society is due to a small bias in favour of the wealthy?   
 Doesn't this suggest that ability and discipline play no part in accumulation of wealth?     Maybe I'm reading to much into his conclusions, but to my point of view, this paper argues against Mustachianism!

Perhaps the unstated assumption is that the wealthy will never offer trade odds that favor their counterpart. For example, no retailer will regularly sell at negative margins. Said another way, any business or casino that offers even or better odds is destined to disappear, and those that offer tilted odds are destined to expand.

To me, this is an argument for Mustachianism, because it forces us to recognize all our purchases or stock trades as probably offering negative utility. Much better to be the business, as long term investors, than to be the consumers who make negative utility trades with the business. The simple decision to be the business instead of the “consumer-sucka”, repeated a few thousand times, is the simple path to prosperity.

Leisured

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Re: Is inequality inevitable? A Scientific American article.
« Reply #54 on: January 06, 2020, 01:22:09 AM »
The article points out that even if everyone has equal ability, drive and judgment, it is still possible for oligarchies to form. Players at a roulette table will vary in their winnings by chance. If a big winner continues to play, then he is likely to lose much of those winnings.

In the real world people vary a lot in ability, drive and judgment, but there is still an element of chance.


Boofinator

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Re: Is inequality inevitable? A Scientific American article.
« Reply #55 on: January 06, 2020, 03:58:24 PM »
I'm going to try to summarize my quibbles with the article (all of which have probably been mentioned in one manner or another in this thread):

1)
Quote
If the amount paid for an object equals exactly what it's worth, no wealth changes hands.
The yard sale game is a bogus representation for how an economy works. An economy is not a zero-sum game. For the typewriter example used in the article, presumably the seller has more utilization for the $10, and the buyer more utilization for the typewriter (perhaps the seller has just retired and no longer needs a typewriter). In other words, both parties become wealthier in a rational economic transaction (not saying that all transactions are rational...).

2)
Quote
To understand how this happens, suppose you are in a casino and are invited to play a game. You must place some ante—say, $100—on a table, and a fair coin will be flipped. If the coin comes up heads, the house will pay you 20 percent of what you have on the table, resulting in $120 on the table. If the coin comes up tails, the house will take 17 percent of what you have on the table, resulting in $83 left on the table. You can keep your money on the table for as many flips of the coin as you would like (without ever adding to or subtracting from it). Each time you play, you will win 20 percent of what is on the table if the coin comes up heads, and you will lose 17 percent of it if the coin comes up tails. Should you agree to play this game?

I would more than likely play this game (ignoring any potential time suck), because $100 is de minimus to me (hence low risk) and the expected value is positive. The distribution of payouts would be very similar to a game like slots or the lottery, where most people lose money but there is the occasional big winner (with the difference being that the house always has the edge in the real world). Another analogy would be venture capitalism: sure, you're going to lose most of the time, but if you can minimize the risk through diversification then the payouts when you win more than offset the small losses.

Now if $100 was a significant amount of my net worth, I would not play, because then you get into utility functions.

Quote
What if I stay for 10 flips of the coin? A likely outcome is that five of them will come up heads and that the other five will come up tails.

Technically, this isn't likely; less than 25% of the time will you get five heads and five tails on ten flips. It would be accurate to state that it's likely one would lose money (~62%). This perhaps is nitpicky, but the author is presenting the illusion that this is a losing game, when it isn't necessarily.

3)
Quote
What should a single transaction between a pair of agents look like? People have a natural aversion to going broke, so we assume that the amount at stake, which we call Δω (Δω is pronounced “delta w”), is a mere fraction of the wealth of the poorer person, Shauna. That way, even if Shauna loses in a transaction with Eric, the richer person, the amount she loses is always less than her own total wealth. This is not an unreasonable assumption and in fact captures a self-imposed limitation that most people instinctively observe in their economic life. To begin with—just because these numbers are familiar to us—let us suppose Δω is 20 percent of Shauna's wealth, ω, if she wins and –17 percent of ω if she loses. (Our actual model assumes that the win and loss percentages are equal, but the general outcome still holds. Moreover, increasing or decreasing Δω will just extend the time scale so that more transactions will be required before we can see the ultimate result, which will remain unaltered.)

As others have noted, these are peculiar percentages that are almost (but not quite) reciprocals of each other. Now what if we change the -17% to -16%? Then the attractor is income equality (rather than inequality), and his final statement (in parenthesis) is an outright lie (coming from the expert). I can send an Excel spreadsheet if anyone wants to play with the scenarios.

If one exactly balances the percentages (using reciprocals), one gets a lognormal distribution as I had mentioned in my previous comment.

4)
Quote
We found that this simple modification stabilized the wealth distribution so that oligarchy no longer resulted. And astonishingly, it enabled our model to match empirical data on U.S. and European wealth distribution between 1989 and 2016 to better than 2 percent. The single parameter χ seems to subsume a host of real-world taxes and subsidies that would be too messy to include separately in a skeletal model such as this one.
Quote
The three-parameter (χ, ζ, κ) model thus obtained, called the affine wealth model, can match empirical data on U.S. wealth distribution to less than a sixth of a percent over a span of three decades.
Quote
The affine wealth model has been applied to empirical data from many countries and epochs. To the best of our knowledge, it describes wealth-distribution data more accurately than any other existing model.

Wow, he really loves his 3-parameter best fit model, doesn't he? Not to berate his outcome, but it is a simple law of mathematics that the more parameters one adds to a model, the better the fit must be. (For example, let's say one collects data from a known second-order process with 10 data points. Would a second-order fit give the best results? Absolutely not; the third-order would be better, and fourth-order better, etc., until we achieved a perfect fit with a ninth-order model.

***

Now that those nitpicks are out of the way, I'll conclude with I generally agree with his model and the need to redistribute wealth to some extent in order to 1) promote the ability for the gifted to get ahead and 2) provide basic sustenance and skills for an overall wealthier economy.