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I guess what I always find unconvincing about these kind of arguments is that they require 0-sum trades, and real world trades are positive sum. I think this i

I guess what I always find unconvincing about these kind of arguments is that they require 0-sum trades, and real world trades are positive sum. I think this is more of a gambling simulation than an economic one. However, even with positive-sum games, the nature of the transaction can have big impact on the wealth inequality. There's a great writeup on that in https://jasoncollins.blog/2020/01/22/ergodicity-economics-a-primer/ https://jasoncollins.blog/2020/01/22/ergodicity-economics-a-...

cryptica 7y ago
>> and real world trades are positive sum. Not in the tech sector. Everyone is competing for monopoly position for each area and niche. Once an area is monopolized, the incumbent gets complacent and inefficient but doesn't lose their winning position. Also people don't make money by creating value, they make money by picking the winners and following the money.
- notahacker 7y ago
  It can still be a positive sum trade to purchase something from a corrupt and inefficient monopoly. Indeed generally the only reason corrupt and inefficient monopolies can stay in business is because having access to the good/service still has value to its customers, even if they'd be happier having an alternative. Sure, VCs make a few negative sum trades when they invest in companies that aren't going to generate the exit they were hoping for, but they're aware of that and trying to balance them out with ridiculously positive sum investments anyway...
- Anderkent 7y ago
  >Also people don't make money by creating value, they make money by picking the winners and following the money. This is still creating value.
  - TheOtherHobbes 7y ago
    No, it isn't. That's not value - that's just rent-seeking i.e. moving money from one pocket to another.
    - Anderkent 7y ago
      The 'picking winners' part is most certainly providing value! If you can, more accurately than at random, look at a bunch of ideas and say which ones are going to be successful and which aren't, so that you (or others) can fund effort toward the likely-to-be-successful ideas and not the unsuccessful ones, that is very valuable and deserves to be rewarded.
      - simonh 7y ago
        Indeed, this is the fundamental contribution of capitalism to practical economic performance. It’s simply the most efficient and successful approach to allocating capital to productive enterprises. It’s still vulnerable to abuse of course, as any approach to allocating resources can be, hence the need for regulation.
        User23 7y ago
        Regulation is also vulnerable to abuse. The naive “solution” to that is more regulation. This is great for successful incumbents since it raises barriers to entry for potential competitors. There will always be competition for resources. It’s my observation that every proposal to eliminate that coincidentally allocates more resources to the proposer or a group he identifies with. Laissez-faire is no exception. In fact I’ve never heard of one.
        deleted 7y ago
        [deleted]
      - cryptica 7y ago
        If you have enough capital and social connections you can pick randomly and still get a return on your investment even if you provided negative value for society. Some monopolistic corporation will end up buying the startup you invested in for a lot of money, shut it down so that the corporation's shareholders will take on the cost but the corporate monopoly means that they won't be affected much anyway. The rest of society ends up paying for that exit through lost opportunity cost because that statup used social manipulation and advertising money to steal customer, supplier and investor attention away from more deserving projects. Investors win, founders win, everyone else loses. To say that it's a zero sum game is actually a very generous way to put it.
fizixer 7y ago
> ... 0-sum trades ... I have heard this argument numerous times, and I'm sick of hearing it over and over again. Yes, real world economy is (almost) practically a zero-sum game. Look at GDP growth rate. A rate of 4-6% of a developed country, with population growth of 1-3% is considered a success (after accounting for inflation). Don't tell me tens of millions of individuals can get out of low-income situation, and billionaires can still keep getting rich, with a measley overall growth of 4-6%. The situation is even worse when every few years, it dips to 2%, 0%, or even goes negative. With a total best-case growth of 4-6%, in a population growing 1-3%, you have to make many folks worse off in order to get ahead.
- sideshowb 7y ago
  But it's compounding. Exponential. 5 percent each year means doubling every 15 years. I'm in favour of more redistribution but I think you're barking up the wrong tree. Long term growth forecasts trail off to more like 1 percent as we hopefully stop unsustainable use of finite resources. Doubling is much slower then.
  - notahacker 7y ago
    Growth over a period of time isn't even strictly necessary for all trades to be positive sum anyway. A village economy where the basket maker trades the same number of baskets for the same amount of food every year may have a zero growth rate [assuming the baskets' lifespan is limited], but those trades are positive sum because the basket maker and the farmers using broken baskets would both be worse off if those trades didn't continue to take place.
  - fizixer 7y ago
    I'm not sure if you considered fully what I said. Are you telling me that capital powerhouses aiming for 8-20% year over year, and consistently having it their way, in an economy of best case 4-6% with instances of 2%, 0%, and negative mixed in, and a population consistently growing by 1-3%, still leaves the rest of the population with growth? Can I sell you a bridge?
tasubotadas 7y ago
You are correct, but for the sake of the simulation, I think this works. However, instead of getting "wealth" you get here "a share of all wealth". Basically, you simulate the proportion of the total wealth. In the real world, the total wealth increases but the proportion might still stay the same. You could basically get the same in the simulation if you were to add some linear offset that's based on the timestep.
- ufov2 7y ago
  If the wealth created in a transaction is proportional to the size of the transaction, that sounds like it would increase the Gini coefficient. Most new wealth is created by transactions involving those with the most wealth, and redistributed to them. Probably simple to check in the simulation. Whether this is any good as a model for the real world is then a different question...
  - xapata 7y ago
    You could make a parameter for that wealth creation factor and see if the value affects the system dynamics.
sjg007 7y ago
Some trades are zero. You exchange money for some good or consumable. For example you buy food at a supermarket. If you were to bake a cake with that food and sell it then it would be non-zero sum but not if you eat it.
- evanpw 7y ago
  You'll only pay $X for a good if it's worth at least $X to you, so in the absence of perfect price discrimination, that trade is also positive-sum: https://en.wikipedia.org/wiki/Economic_surplus#Consumer_surplus https://en.wikipedia.org/wiki/Economic_surplus#Consumer_surp...
  - g_langenderfer 7y ago
    In other words, if a banana costs $1 and I buy it, its value to me is at least $1
  - sjg007 7y ago
    That’s an illusion if you can’t use it directly to make more money. In the abstract sure it’s positive value but for this simulation or any simulation it doesn’t matter.
- snowwrestler 7y ago
  If there is no difference in value between the money and the food, then why did you exchange the money for the food? Why not just keep your money and skip the trip to the store? Same with the store: why bother selling the food for money? If the value is the same, why doesn’t the store just keep the food and save themselves the trouble?
  - sjg007 7y ago
    The store buys low and sells high, that’s the value. The end consumer does not... unless they are baking a cake to sell or something.
    - 7y ago
amatic 7y ago
Transactions are pos sum only if you look at subjective value, right?
- npongratz 7y ago
  All value is subjective.
  - garmaine 7y ago
    But there are objective measures of value, such as the price you paid in a transaction.
    - amatic 7y ago
      The price you paid says you value the thing you got more than the money you gave in exchange. At the same time, the person who received the money values it more than the thing he sold. That is what makes economic transactions positive sum games, according to some theories.
    - philwelch 7y ago
      I would call market prices more “consensus” than “objective”, since they’re based on the aggregate subjective valuations of those involved in the market.
      - garmaine 7y ago
        You can objectively point to them. The prices are visible for all to see.
  - amatic 7y ago
    Agreed. Have you seen any models or simulations of economies with subjective value? All I see are some 'objective' measures.
    - wodenokoto 7y ago
yters 7y ago
In the details, even though the simulation shows great inequality, it also shows that everyone gets a chance to be part of the 1% for a bit. Which is better: everyone is always mediocre, or everyone gets to be super rich for a bit and poor for awhile? I also created a sum positive version of his sim awhile back, and one interesting outcome is that monopolies became essential for stabilizing the economy in the face of catastrophic recessions. And if we had the zero sum economy where everyone is mediocre, then no one survives catastrophic recessions. So, capitalism and monopolies seem to be the best overall in terms of survival benefit, and wealth redistribution schemes get wiped out by natural selection. I guess that's what happened to the USSR during the Cold War.
- sudoaza 7y ago
  > it also shows that everyone gets a chance to be part of the 1% for a bit. > Which is better: everyone is always mediocre, or everyone gets to be super rich for a bit and poor for awhile? This wouldn't agree with real life, it's been shown that rich stay rich and poor stay poor with much higher frequency than chance, almost always. https://fivethirtyeight.com/features/rich-kids-stay-rich-poor-kids-stay-poor/ https://fivethirtyeight.com/features/rich-kids-stay-rich-poo... https://www.cnbc.com/2019/05/29/study-to-succeed-in-america-its-better-to-be-born-rich-than-smart.html https://www.cnbc.com/2019/05/29/study-to-succeed-in-america-...
  - yters 7y ago
    Just talking about tweaking simulation parameters here, since the original simulation parameters were supposedly meaningful.
brakus127 7y ago
I agree. Both the simulation and the analysis are quite useless for two reasons. 1) It doesn't perform any analysis of the individual population members between time-steps. A members of the population jumps randomly within the income distribution after a transaction and the plots don't account for this. I would like to see the average wealth of each of the population members over time. I'm guessing it will be 100. 2) The transaction function is entirely unrealistic causing and making addressing 1) pointless since each population member is essentially a new born between time steps. That said, it an interesting exercise in how one can generate a beta-like distribution. Overall, this is too far removed from reality to be of use in debating how to address income inequality.

cryptica 7y ago

>> and real world trades are positive sum. Not in the tech sector. Everyone is competing for monopoly position for each area and niche. Once an area is monopolized, the incumbent gets complacent and inefficient but doesn't lose their winning position. Also people don't make money by creating value, they make money by picking the winners and following the money.

notahacker 7y ago
It can still be a positive sum trade to purchase something from a corrupt and inefficient monopoly. Indeed generally the only reason corrupt and inefficient monopolies can stay in business is because having access to the good/service still has value to its customers, even if they'd be happier having an alternative. Sure, VCs make a few negative sum trades when they invest in companies that aren't going to generate the exit they were hoping for, but they're aware of that and trying to balance them out with ridiculously positive sum investments anyway...
Anderkent 7y ago
>Also people don't make money by creating value, they make money by picking the winners and following the money. This is still creating value.
- TheOtherHobbes 7y ago
  No, it isn't. That's not value - that's just rent-seeking i.e. moving money from one pocket to another.
  - Anderkent 7y ago
    The 'picking winners' part is most certainly providing value! If you can, more accurately than at random, look at a bunch of ideas and say which ones are going to be successful and which aren't, so that you (or others) can fund effort toward the likely-to-be-successful ideas and not the unsuccessful ones, that is very valuable and deserves to be rewarded.
    - simonh 7y ago
      Indeed, this is the fundamental contribution of capitalism to practical economic performance. It’s simply the most efficient and successful approach to allocating capital to productive enterprises. It’s still vulnerable to abuse of course, as any approach to allocating resources can be, hence the need for regulation.
      - User23 7y ago
        Regulation is also vulnerable to abuse. The naive “solution” to that is more regulation. This is great for successful incumbents since it raises barriers to entry for potential competitors. There will always be competition for resources. It’s my observation that every proposal to eliminate that coincidentally allocates more resources to the proposer or a group he identifies with. Laissez-faire is no exception. In fact I’ve never heard of one.
      - deleted 7y ago
        [deleted]
    - cryptica 7y ago
      If you have enough capital and social connections you can pick randomly and still get a return on your investment even if you provided negative value for society. Some monopolistic corporation will end up buying the startup you invested in for a lot of money, shut it down so that the corporation's shareholders will take on the cost but the corporate monopoly means that they won't be affected much anyway. The rest of society ends up paying for that exit through lost opportunity cost because that statup used social manipulation and advertising money to steal customer, supplier and investor attention away from more deserving projects. Investors win, founders win, everyone else loses. To say that it's a zero sum game is actually a very generous way to put it.

fizixer 7y ago

> ... 0-sum trades ... I have heard this argument numerous times, and I'm sick of hearing it over and over again. Yes, real world economy is (almost) practically a zero-sum game. Look at GDP growth rate. A rate of 4-6% of a developed country, with population growth of 1-3% is considered a success (after accounting for inflation). Don't tell me tens of millions of individuals can get out of low-income situation, and billionaires can still keep getting rich, with a measley overall growth of 4-6%. The situation is even worse when every few years, it dips to 2%, 0%, or even goes negative. With a total best-case growth of 4-6%, in a population growing 1-3%, you have to make many folks worse off in order to get ahead.

sideshowb 7y ago
But it's compounding. Exponential. 5 percent each year means doubling every 15 years. I'm in favour of more redistribution but I think you're barking up the wrong tree. Long term growth forecasts trail off to more like 1 percent as we hopefully stop unsustainable use of finite resources. Doubling is much slower then.
- notahacker 7y ago
  Growth over a period of time isn't even strictly necessary for all trades to be positive sum anyway. A village economy where the basket maker trades the same number of baskets for the same amount of food every year may have a zero growth rate [assuming the baskets' lifespan is limited], but those trades are positive sum because the basket maker and the farmers using broken baskets would both be worse off if those trades didn't continue to take place.
- fizixer 7y ago
  I'm not sure if you considered fully what I said. Are you telling me that capital powerhouses aiming for 8-20% year over year, and consistently having it their way, in an economy of best case 4-6% with instances of 2%, 0%, and negative mixed in, and a population consistently growing by 1-3%, still leaves the rest of the population with growth? Can I sell you a bridge?

tasubotadas 7y ago

You are correct, but for the sake of the simulation, I think this works. However, instead of getting "wealth" you get here "a share of all wealth". Basically, you simulate the proportion of the total wealth. In the real world, the total wealth increases but the proportion might still stay the same. You could basically get the same in the simulation if you were to add some linear offset that's based on the timestep.

ufov2 7y ago
If the wealth created in a transaction is proportional to the size of the transaction, that sounds like it would increase the Gini coefficient. Most new wealth is created by transactions involving those with the most wealth, and redistributed to them. Probably simple to check in the simulation. Whether this is any good as a model for the real world is then a different question...
- xapata 7y ago
  You could make a parameter for that wealth creation factor and see if the value affects the system dynamics.

sjg007 7y ago

Some trades are zero. You exchange money for some good or consumable. For example you buy food at a supermarket. If you were to bake a cake with that food and sell it then it would be non-zero sum but not if you eat it.

evanpw 7y ago
You'll only pay $X for a good if it's worth at least $X to you, so in the absence of perfect price discrimination, that trade is also positive-sum: https://en.wikipedia.org/wiki/Economic_surplus#Consumer_surplus https://en.wikipedia.org/wiki/Economic_surplus#Consumer_surp...
- g_langenderfer 7y ago
  In other words, if a banana costs $1 and I buy it, its value to me is at least $1
- sjg007 7y ago
  That’s an illusion if you can’t use it directly to make more money. In the abstract sure it’s positive value but for this simulation or any simulation it doesn’t matter.
snowwrestler 7y ago
If there is no difference in value between the money and the food, then why did you exchange the money for the food? Why not just keep your money and skip the trip to the store? Same with the store: why bother selling the food for money? If the value is the same, why doesn’t the store just keep the food and save themselves the trouble?
- sjg007 7y ago
  The store buys low and sells high, that’s the value. The end consumer does not... unless they are baking a cake to sell or something.
  - 7y ago

amatic 7y ago

Transactions are pos sum only if you look at subjective value, right?

npongratz 7y ago
All value is subjective.
- garmaine 7y ago
  But there are objective measures of value, such as the price you paid in a transaction.
  - amatic 7y ago
    The price you paid says you value the thing you got more than the money you gave in exchange. At the same time, the person who received the money values it more than the thing he sold. That is what makes economic transactions positive sum games, according to some theories.
  - philwelch 7y ago
    I would call market prices more “consensus” than “objective”, since they’re based on the aggregate subjective valuations of those involved in the market.
    - garmaine 7y ago
      You can objectively point to them. The prices are visible for all to see.
- amatic 7y ago
  Agreed. Have you seen any models or simulations of economies with subjective value? All I see are some 'objective' measures.
  - wodenokoto 7y ago

yters 7y ago

In the details, even though the simulation shows great inequality, it also shows that everyone gets a chance to be part of the 1% for a bit. Which is better: everyone is always mediocre, or everyone gets to be super rich for a bit and poor for awhile? I also created a sum positive version of his sim awhile back, and one interesting outcome is that monopolies became essential for stabilizing the economy in the face of catastrophic recessions. And if we had the zero sum economy where everyone is mediocre, then no one survives catastrophic recessions. So, capitalism and monopolies seem to be the best overall in terms of survival benefit, and wealth redistribution schemes get wiped out by natural selection. I guess that's what happened to the USSR during the Cold War.

sudoaza 7y ago
> it also shows that everyone gets a chance to be part of the 1% for a bit. > Which is better: everyone is always mediocre, or everyone gets to be super rich for a bit and poor for awhile? This wouldn't agree with real life, it's been shown that rich stay rich and poor stay poor with much higher frequency than chance, almost always. https://fivethirtyeight.com/features/rich-kids-stay-rich-poor-kids-stay-poor/ https://fivethirtyeight.com/features/rich-kids-stay-rich-poo... https://www.cnbc.com/2019/05/29/study-to-succeed-in-america-its-better-to-be-born-rich-than-smart.html https://www.cnbc.com/2019/05/29/study-to-succeed-in-america-...
- yters 7y ago
  Just talking about tweaking simulation parameters here, since the original simulation parameters were supposedly meaningful.

brakus127 7y ago

I agree. Both the simulation and the analysis are quite useless for two reasons. 1) It doesn't perform any analysis of the individual population members between time-steps. A members of the population jumps randomly within the income distribution after a transaction and the plots don't account for this. I would like to see the average wealth of each of the population members over time. I'm guessing it will be 100. 2) The transaction function is entirely unrealistic causing and making addressing 1) pointless since each population member is essentially a new born between time steps. That said, it an interesting exercise in how one can generate a beta-like distribution. Overall, this is too far removed from reality to be of use in debating how to address income inequality.