Inequality is a Law of Nature? [Political Affairs archives]
By Thomas Riggins
Science and the Rich
New Scientist, the British science magazine more or less equivalent to Science News in the US, but a step down from Scientific American, has a wonderful article in its March 12-18 ‘05 issue. The article, by Jenny Hogan, is headed "There’s one rule for the rich... Anyone trying to redistribute wealth in a market economy may be up against a law of nature."
A law of nature? That would certainly make economic reform in favor of the poor a rather more difficult task than the left has envisioned. On the other hand, it favors those who want to abolish the market altogether.
What is Hogan talking about? A remarkable discovery has been made as a result of studying the US economy. Hold on to your hats, but scientists have found out that "The rich are getting richer while the poor remain poor." This astounding fact has emerged from a study of the US economy since 1979. In that year the income gap between the top one percent of the population and the bottom 20 percent was 33:1. By 2000 it was 88:5.
Hogan says that this gap will likely grow if the scientists (physicists) are correct with the new model of capitalism (the market economy) they are drawing up based on the laws of physics holds true.
A new science is in the making – a blend of physics and economics called "econophysics" and Hogan’s article is a news account about the conference to be held this week in Kolkata, India, a first for the new science.
She quotes Sudhakar Yarlagadda from the Saha Institute of Nuclear Physics, which is located in Kolkata, who is concerned about "understanding whether there is some kind of social injustice behind this skewed distribution" of wealth. Let’s hope not! If the US showed signs of social injustice what in the world would be going on in Kolkata, Bombay and New Delhi? India might have its own problems with "skewed distribution." But if this is all due to a law of nature what’s to be done?
Well, even if some people are confused about the "injustice issue" others are not, or at least they think society is "unfair." Hogan quotes Robin Marris a retired economist from the University of London. He says, "People on the whole have normally distributed attributes, talents and motivations, yet we finish up with wealth distributions that are much more unequal than that."
How are we to explain all this? Hogan tells us that there is some sort of "power law" (mathematical powers) at work that was discovered by Vilfredo Pareto (1848-1923) that explained why the rich people in Europe ended up with most of the wealth.
Who was Pareto? Excuse me for this small digression. He was an economic philosopher who came up with an idea now known as "Pareto optimality" as a measure of the efficiency of an economic system. This, and not his "power law," is the real basis of his philosophy.
That system is optimal when it can’t be changed in anyway so that to help a person B a person A will be hurt. So it is not efficient if, in order to abolish slavery, the slaves benefit at the expense of the masters. Any income redistribution would violate this optimality of the system.
Pareto’s system was very status quo. It favored free trade, economic elites (about three percent of the population as calculated by his "power law"), and authoritarian governments. While Pareto lived in Switzerland and was apolitical, he had a big fan down in Italy by the name of Benito Mussolini who adopted many of his ideas and gave him many honors. But as one author says (Peter Winch), "since he died after only one year of the fascist regime, his considered attitude to it must be a matter of conjecture." Hmmm.
Now back to Hogan. She says that while the rich are governed by Pareto’s law (fascists and their friends will protect the "efficiency" of the system for the benefit of the ruling class) the rest of us, including the poor, have been found to be subject to "a completely different law." We act like atoms in a gas.
How does this work? Hogan turns to a physicist at the University of Maryland, Victor Yakovenko, who after researching Internal Revenue Service statistics concluded that Pareto was correct about the upper crust three percent. His "power law" rules this group (and limits it numbers – not four percent or ten percent – the rich are three percent – actually between two and three).
The rest of us, just as atoms in a gas exchange energy when they randomly collide with one another, are randomly interchanging economically with a host of other people – only we exchange money for services and goodies, etc. Just as the gas/atom system has the same amount of energy in it after all the random collisions (conservation of energy), so does the economy regulating the 97%. When the day is done and we are all back home after dealing with the butcher, the baker and the candlestick maker, and they are done with us, money has been redistributed but the amount of money is the same – just in different pockets. We are different from the elite because they are also creating wealth which trickles down to us. That is why we should not mess with them.
"This, along with research data from other countries," Hogan concludes, "suggests that there are two economic classes. In one, the rich grow richer while in the other the poor stay poor." This is an amazing scientific discovery. Who would have thought of this? This should go a long way to increase the credibility of science with the Bush administration. Left wing malcontents are simply anti-scientific and refusing to except a law of nature.
The good news for millionaire wannabe’s is that because the system is random it is possible for a member of the masses to jump into the elite once in a while (the lotto factor). But, Yakovenko warns, any type of social policy designed to redistribute the wealth of society to help the poor would be ill-advised. His atom/gas model, plus Pareto’s theories indicate trying to transfer the goodies from one class to another (from rich to poor that means) "will be very inefficient short of getting Stalin." Yikes!
Well I’m glad that’s settled. There is no arguing with science. I just wonder if there is a mad scientist somewhere on the verge of discovering a system where the wealth is actually being transferred from the poor to the rich. What kind of system would that be like?