Wednesday, December 20, 2017

Wealth inequality as a law of nature.

Here is the abstract from Scheffer et al.,  a bit of work that casts an interesting light on the current Republican tax legislation that significantly accelerates the unequal distribution of wealth in this country, as described nicely by David Leonhardt:

Inequality is one of the main drivers of social tension. We show striking similarities between patterns of inequality between species abundances in nature and wealth in society. We demonstrate that in the absence of equalizing forces, such large inequality will arise from chance alone. While natural enemies have an equalizing effect in nature, inequality in societies can be suppressed by wealth-equalizing institutions. However, over the past millennium, such institutions have been weakened during periods of societal upscaling. Our analysis suggests that due to the very same mathematical principle that rules natural communities (indeed, a “law of nature”) extreme wealth inequality is inevitable in a globalizing world unless effective wealth-equalizing institutions are installed on a global scale.
Most societies are economically dominated by a small elite, and similarly, natural communities are typically dominated by a small fraction of the species. Here we reveal a strong similarity between patterns of inequality in nature and society, hinting at fundamental unifying mechanisms. We show that chance alone will drive 1% or less of the community to dominate 50% of all resources in situations where gains and losses are multiplicative, as in returns on assets or growth rates of populations. Key mechanisms that counteract such hyperdominance include natural enemies in nature and wealth-equalizing institutions in society. However, historical research of European developments over the past millennium suggests that such institutions become ineffective in times of societal upscaling. A corollary is that in a globalizing world, wealth will inevitably be appropriated by a very small fraction of the population unless effective wealth-equalizing institutions emerge at the global level.

Figure - Inequality in society (Left) and nature (Right). The Upper panels illustrate the similarity between the wealth distribution of the world’s 1,800 billionaires (A) (8) and the abundance distribution among the most common trees in the Amazon forest (B) (3). The Lower panels illustrate inequality in nature and society more systematically, comparing the Gini index of wealth in countries (C) and the Gini index of abundance in a large set of natural communities (D). (The Gini index is an indicator of inequality that ranges from 0 for entirely equal distributions to 1 for the most unequal situation. It is a more integrative indicator of inequality than the fraction that represents 50%, but the two are closely related in practice. Surprisingly, Gini indices for our natural communities are quite similar to the Gini indices for wealth distributions of 181 countries.)

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