CAMREC: Egalitarianism in a world of power-law distributions

From: the Campaign for Real Economics (camrec@mmu.ac.uk)
Date: Thu Nov 30 2000 - 16:07:27 GMT

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    From: the Campaign for Real Economics <camrec@mmu.ac.uk>
    Date: Thu, 30 Nov 2000 10:07:27 -0600
    Subject: CAMREC: Egalitarianism in a world of power-law distributions
    

    I've been trying to find a connection between econophysics and neoclassical
    economics. Econophysics has been bouncing ideas off the economic Ivory
    Tower for several years now with very little impact. I've wondered why.

    One possible answer is the focus of econophysics on 'risk' analysis. The
    econophysicists are big on gathering huge amounts of trading data and
    pouring it into their statistical routines designed for quantum
    mechanics. Pulling the results from their mathematical machinery, they
    announce the discovery that 'neoclassical theory is wrong since it didn't
    predict fat tails!' They then set up shop as 'risk experts', as if all
    economics was devoted to protecting assets.

    It seems they miss the rather utopian foundations of economics. The point
    of economic theory is building utopia, an equitable society for everyone
    (perhaps every living thing) in the world. UN councils on economics are
    supposed to assist our political organizations into a tranquil era of peace
    and prosperity. It seems fair to claim that unless econophysics can
    address these simple utopian aims, it offers no economic insight.

    For example, consider the role of egalitarianism in
    econophysics. Egalitarianism is a simple, almost universal, credo. Who is
    willing to advocate inequality! Adam Smith and the neoclassical tradition
    seems to assume that 'left alone,' economic egalitarianism is natural. Man
    has corrupted the balance of nature. Economics will straighten out the mess.

    Unfortunately for the econophysicist, the data they study provides a vast
    collection of power-law distributions, a host of lessons in
    inequality. Equality is simply unnatural. Nature distributes wealth via
    power-laws! Equilibrium stability is unnatural.

    My guess is that we are waiting for someone to find an attractive political
    use for the knowledge that wealth is 'naturally' non-egalitarian and we are
    all somehow better off for this. Until someone comes up with this
    synthesis, econophysics and 'real economics' will little impact on the
    public at large.



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