13 Dec 2005

Econophysics and Inequality


Christopher Shea reports:

Victor Yakovenko, a physicist at the University of Maryland, happens to think that current patterns of economic inequality are as natural, and unalterable, as the properties of air molecules in your kitchen.

He is a self-described “econophysicist.” Econophysics, the use of tools from physics to study markets and similar matters, isn’t new, but the subfield devoted to analyzing how the economic pie is split acquired new legitimacy in March when the Saha Institute of Nuclear Physics, in Calcutta, held an international conference on wealth distribution.

Econophysicists point out that incomes and wealth behave suspiciously like atoms. In the United States, for example, beneath the 97th percentile (roughly $150,000), the dispersion of income fits a common distribution pattern known as “exponential” distribution. Exponential distribution happens to be the distribution pattern of the energy of atoms in gases that are at thermal equilibrium; it’s a pattern that many closed, random systems gravitate toward. As for the wealthiest 3 percent, their incomes follow what’s called a “power law”: there is a very long tail in the distribution of data. (Consider the huge gap between a lawyer making $200,000 and Bill Gates.)

Other developed nations seem to display this two-tiered economic system as well, with the demarcation lines differing only slightly.

To an econophysicist, the exponential distribution of incomes is no coincidence: it suggests that the wealth of most Americans is itself in a kind of thermal equilibrium. To change it, “you will have to fight entropy,” Yakovenko says. That people aren’t mindless atoms and that governments try limited wealth redistribution doesn’t really matter, he adds: large, complex systems have their own statistical logic that trumps individual, and state, decisions. In March, Yakovenko told New Scientist that “short of getting Stalin,” efforts to make more than superficial dents in inequality would fail. Recent increases in inequality in the United States, he adds, stem from the rising fortunes of the top 3 percent; there has been little change in the rest of the distribution.


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