From: Ian Wright (iwright@GMAIL.COM)
Date: Wed Feb 09 2005 - 13:00:20 EST
Hi all, A conference on explaining the two-class income distribution of capitalist economies, scheduled for March: http://www-cmp.saha.ernet.in/~econophys/conf/index.html Some of the abstracts make for interesting reading (see link on LHS). High-level points: 1. There are now a number of quite similar models for the complete income distribution. They all share the approach of modelling income distribution in terms of statistical mechanics, and view the economy in a state of stochastic, not deterministic, equilibrium. This is quite different from traditional economic modelling approaches, and in my opinion underscores the importance of the pioneering work of Farjoun and Machover. 2. The empirical evidence of a two-class income structure is very strong, the lower regime (wage income) characterised by an exponential distribution, the upper-regime characterised by a Pareto distribution (property income). 3. The explanation for the two regimes is handled in a superficial way by some of the researchers. For example, some of the theories proposed explain the Pareto regime arising from multiplicative returns to investments (e.g., a growing portfolio whose growth is proportional to its size). Let's call this the investment explanation. Obviously this occurs, but in my opinion it remains at the surface. A deeper explanation is that the Pareto regime can form absent stock markets due to the undemocratic distribution of firm revenues within capitalist firms, i.e. exploitation. Let's call this the exploitation explanation. The Pareto (power-law) regime then forms due to capitalist owners exploiting workers in firms whose sizes follow a power-law. For example, Jurgen Mimkes abstract leans towards an exploitation explanation, whereas Souma & Nirei's leans towards an investment explanation. The usual kinds of arguments over income distribution reappear in econophysics, but in different forms. 4. I think this kind of work demonstrates the importance of taking a statistical equilibrium approach to economics. Best wishes to all! -Ian.
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