Victor Yakovenko: What Causes Inequality? An Econophysics Approach

Welcome to our video series titled "New Economic Thinking." The series will feature dozens of conversations with leading economists on the most important issues facing economics and the global economy today.

This episode features Institute for New Economic Thinking grantee Victor Yakovenko speaking about his innovative approach to economic inequality. In standard economics, inequality in outcomes is typically attributed to inequality of inputs, for example, from differences in education. Yakovenko thinks about inequality in a different way by extending some ideas from statistical physics.

[gerasimosmichalitsianos]

had this professor for statistical thermodynamics. very hard class. but learned alot.

[jamespepito]

shifting equilibrium dynamics relative to changing contexts, amazing

[NilavraPathak]

This is what dawned on to me while I am working on online ad auctions.

[dickhamilton]

if you have a million dollars, it's much easier to make the next 1000 than it is if you only have 10, 000 dollars.

[Mrlimabean]

what does he mean when he says "described by power law"? aren't exponential functions governed by power law?

[jamesoconnortd_corkeast]

All 10 landau and lifshitz books for undergraduate... Jesus Christ it's Jason bourne

[MarkoKraguljac]

Inequality among people is caused, perpetuated and amplified by scarcity. We have economic order whose founding pillar is maintenance of scarcity at all costs. On top of that we have a crisis of social contract (work-based society starved for work (and more importantly income!)). On top of all that we have serious energy and possibly climate crisis.
So we have both natural and artificial scarcities perpetuating inequality.

[brentdobson]

May also a Post Singularity Intelligence awareness inhail this conceptuality for comprehensivity in simulations to operational application globally within Real Economy *

* " Critical Path " and " Synergetics : The Geometry Of Thinking " by Richard Buckminster Fuller ( Head Engineer For Economic Cold War Faring from beginning to near middle forties ) .

Fuller was an American pragmatic Transcendentalist .

[anmolagrawal]

8:54 Lol, so I am not the only one thinking along these lines xD

[daniel]

Is INET about new economic thinking or just MMT thinking?

[whomonkyoulus]

The source of the "non-natural" distribution that you notice is called "privilege", or in economic terms "economic rent", mostly from land, but other sources also, like inheritance.  

[cmfluteguy]

As the Pareto economy continues to sap wealth from the Maxwell Boltzman economy, it seems to me that there is an increasing probability of a spontaneous symmetry breaking analogous to the the U(1) and  SU(2) break.

I would think that the Maxwell Boltzmann economy will be fueled by an alternative money supply that is based on something like a Bitcoin concept. There would be a new and separate ground state that is largely decoupled from the dollar economy.

Our innovations can be funded by mechanisms like Kickstarter, but the impetus is not the dollar.

Any thoughts?

[traviskey]

Show me equality in the universe. Show me equality in nature. Show me the equal distribution out of these two...

[hamandchees]

Power laws and fractal phenomenon appear everywhere in nature and in social phenomenon. It's not really new thinking. Shelling showed this stuff years ago and with microfoundations!

[FonsecaStatter]

Very interesting (sarcasm...) It seems to describe the distribution of income and/or wealth, very well... But what about an explanation of why is there any level of inequality to start with?...
«Newtonian Economics» (the neoclassical and/or marginalist paradigm) is also econophysics... The «mechanics of a market place»... So, what's new?

[commonmancrypto]

Are markets truly efficient? Are they totally absent of any viscosity? Is there no change in the fluid dynamic... no variation in the flow pattern? Really? I wasn't aware humans possessed a telepathic connection capable of sharing all of our knowledge instantaneously among all actors. Cool theory though.
.... hypothetically speaking, if every participant had complete knowledge and the ability to make a full evaluation, markets would be efficient. However, practically speaking this is not the case. Prices can move drastically while the majority of potential participants remain unaware.
During the volatility of the covid-19 panic, the price of Bitcoin dropped approximately 25% within 30 minutes and recovered all of its losses by the end of the hour. The vast majority of the cryptocurrency community was unaware or incapable of evaluating Bitcoin during this volatile period.
If markets were completely efficient, prices would fluctuate in a less volatile equilibrium which would represent changing collective perception. What we observe in the movement of prices is a fluctuation around this theoretical equilibrium.
There are two fundamentally different forms of cycles and it is important to distinguish them. Number one is the fluctuation of the theoretical equilibrium. The other is the fluctuation of the actual price around the theoretical equilibrium and its Associated Cycles.
To better understand the nature of this fluctuation around the equilibrium, we must imagine the movement of prices and a more sophisticated way. We must graph them We Begin by monitoring the ratio between liquidity, unique actors, and input capital. The ratio will dictate how the price moves across the z-axis. In moments of low liquidity and speculation, the price would not only move up, but it would move significantly down the Z-axis. By contrast, a moment of high liquidity and numerous actors would produce an increase in price and a move up the z-axis.
With this framework established, we now have a better means by which to evaluate the nature of price movement. Now, let's turn our attention back to the nature of the fluctuation between the real price and the theoretical equilibrium. Self-similarity has been observed in the movement of prices for over a hundred years. Market fractals are a well-known and observed phenomenon. As far as I know, no one has put forth a thorough comprehensive Theory regarding this phenomenon.

[cr]

The demand side is so lazy.  

Incentivizing supply promotes all the natural characteristics that marxists naturally associate with a "community" because the lower class is now a beneficiary of "the power law" - compounding.  Incentivizing demand isn't sustainable because it's basis for existence depends solely on the political whim of those in charge, as opposed to incentivizing supply; where individuals are constantly responsible for the amount of resources they use.  

Notice.  The inequality crowd is only concerned with who receives income.  It never concerns itself with how a society should harness it's resources.  

Profits Demand Efficient Distribution of Resources.



The fact that compounding isn't discussed by an individual "with an economics background" when the term "power law" is brought up is proof, in my mind, that truth is not being sought here.



Language is beautiful.

[ronpaulrevered]

There is no distribution of wealth, there is a distribution in the capacity of individuals to generate wealth.

[imhrnow]

Jesus this guy acts like the things he is saying are new ideas.

Pareto (power law) inequality is well understood as a consequence of efficient, fair markets. Everything he describes is predicted by the most simple game theoretic models of an "economy".

Not sure why they are so surprised?

[vasilerata]

That's an antidote to socialist scapegoating.