Lost "New Scientist" Econophysics link found... and it's in the public domain too. Press on blue highlights to get graphs. I've put in the thread header too.
science-finance.fr
graphs
science-finance.fr
Do we care if the rich are always here, as long as we get a bite at the cherry?
Illustration: Brett Rider
WATCH out, here come the econophysicists! OK, so they may not come from a branch of science you've heard of, but you soon will if the physicists now invading the quasiscience of economics have anything to do with it. Not to make money, of course, but with that usual physicist's hubris that they can explain the world more simply than everyone else.
And, judging by the work of two Parisian econophysicists, they are making a controversial start at tearing up some perplexing economics and reducing them to a few elegant general principles--with the help of some serious mathematics borrowed from the study of disordered materials.
Jean-Philippe Bouchaud and Marc Mézard set out to explain why every country in the world has a few rich people and then a long tail of poorer and poorer people, distributed according to a simple and unvarying statistical rule (see p 22). In much of the Western world, 20 per cent of the people always own 80 per cent of the wealth. Economists have tended to look for explanations in human terms--in the distribution of talent, for example. But why should the distribution vary so little across cultures or over the past century?
According to the physicists, it is all very simple. The distribution arises from the unpredictability of life: if returns on investment are uncertain and each person trades with a network of others, then inequalities in wealth will arise wholly naturally. Even if we all started life with precisely the same abilities and the same amount of money, over time we'd still end up with the same distribution of rich and poor. It's not just a law of economics but a law of nature--the rich will always be with us.
If that sounds gloomily fatalistic, don't abandon hope yet. Although the new breed of econophysicists are a welcome breath of fresh air for economics, their theories remain very general. They say nothing about individuals. Although the mathematical distribution of rich and poor might be a law of nature, nothing is said about who is going to be rich or poor. That remains dependent on the individual, their opportunities and all the social policies that governments must try to get right. After all, do most people really care if the rich are always there, provided we have a chance to be among them?
Bouchaud and Mézard's theory might even add something to social theory. From the equations they have borrowed from materials science, they predict that societies will grow more equal if their economic "temperatures" are higher. A high temperature means lots and lots of vigorous trading between more and more people. Perhaps the fever-pitch Internet trading boom could prove an antidote to inequality as more and more people participate in the random ebb and flow of wealth.
Still feeling enraged that physics predicts the rich are an inescapable fact of life? If you are an idealist, look at it another way. If the rich will always be with us, so will the revolutionaries who want to terminate them with extreme prejudice. If a new class of rich inevitably emerges after every levelling, then so will a new class of malcontents to chop off their heads. If those French physicists have it right, they might one day be able to predict when the wheel will turn full circle and it is time to start sharpening the guillotine again. Danton would be proud of them.
To hear the views of the econophysicists visit www.unifr.ch/econophysics |
