Wealth Distribution

Two French scientists think they’ve modeled how wealth gets concentrated to the wealthy, and observe that in their model, increasing the amount of economic exchange that occurs helps to even out the distribution.

In “Wealth condensation in a simple model of economy,” Jean-Philippe Bouchaud and Marc Mézard developed a simple model of wealth transfer that reliably developed the familiar Pareto distribution of wealth, and were able to write, “The important conclusion of the above model is that the distribution of wealth tends to be very broadly distributed when exchanges are limited. Favoring exchanges (and, less surprisingly, increasing taxes) seems to be an efficient way to reduce inequalities.” [Their paper is also included in a list of other papers by Bouchard.]

Bouchaud and Mézard’s paper is a bit dry, but there are some more accessible explanations of it:

Mark Buchanan in “That’s the way the money goes” and “Wealth Happens” (the latter with a bit of a nod to network analysis); and

Robert Matthews in “Trade Routes to Equality“.

I haven’t read it yet, but after reading the papers noted above, I wonder if Nassim Nicholas Taleb’s book “Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life,” ISBN 1587990717, is relevant.