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-...
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.
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.
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?
Well I for one always took issue with the rational consumer model. It is possible that people trade things they value for things they don't, because people do not always act rationally.
By the way, economic concepts are statistics. Arguments are only meaningful on large number of samples or over long period of time.
* The company now has more money for research and development, which will result in the creation of new value.
* Demand has been demonstrably increased (from the moment before the transaction), providing a small but real signal that production should increase. Increased production will result in new value being created.
And so on. This is all on average, of course. Some companies destroy value through incompetence, ignorance, malicious action, or other mechanisms.
Let’s say I buy something from you and I pay you $7 for it. Then, I sell it for $10.
In this case, my cost $7, my revenue is $10, and the value I got from your item is $3.
It’s not always this clear cut, but sometimes it is.
For Bill Gates, 3 dollars is near worthless.
For a poor, 3rd world country citizen living on less than a dollar a day, 3 dollars is very valuable.
Secondly, from your point of view it might be that 3 is 3. But if we look at the entire economy, things get extremely muddy. Maybe those ten dollars that the transaction is based on come from a loan based on a quantifier. So the bank lend out 10 dollars based on a 1 dollar holding. Now the money supply has increased, which all things equal will lower the value of each dollar.
But all things are not equal. The economy is growing and if it is growing faster than the money supply is growing then the value of the dollar is still growing.
The value of those 3 dollar profit is
3/[size of money supply] x [value of economy]
And valuating the economy is extremely difficult. To the point where you could call it subjective.
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.
> 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-poo...
https://www.cnbc.com/2019/05/29/study-to-succeed-in-america-...
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.
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...
This is still creating value.
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.
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.
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.
>With a total growth of 4-6%, you have to make many folks worse off in order to get ahead.
I mean, kinda, in that if you make something really good you make the person that made something slightly worse worse off, as they now don't get the money you earn instead? But this is not what you mean.
> 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 way billionaires are rich is by controlling organisations that provide a lot of value and capture some of that value for themselves. One of them getting 10% 'richer' on paper doesn't mean that organisation grabbed some more resources from others; it's not real, current wealth, it's estimated value of total future income from that organisation.
So yes you can totally have those organisations become more valuable by more than 4-6% a year without other people losing out. You're confusing the total amount of value/utility produced in a year (which GDP is more-or-less trying to estimate) with projected total amount of value produced in all future years.
Wow, so I guess I was living with the wrong understanding of positive-sum all this time.
Positive sum doesn't just mean win-win. It also includes win-lose because the winning side actually won.
Got it.
Suppose I each year I produce two eggs and you produce two slices of bacon. We both value these at $1 each. The total value produced this year was $4.
Next year, we produce the same, but we agree to a trade - one egg for one slice of bacon. Egg with bacon is clearly superior to just two eggs or just two slices of bacon for breakfast; so we value the combo of egg+bacon at $3, giving total value of $6.
Next year, we do the same. Total value was just $6, for 0% growth. However, that doesn't mean there was a 'winning side' to the trade. It just means the previous estimate for produced value already included the benefits of the trade, so there's been no change.
When your example is included in Norvig's simulation, it will result in two parties coming together, and instead of an interaction of (-1, +1), the interaction (+1, +1) will happen.
However, when such interactions are randomly mixed with zero-sum trades, and the simulaion is run over N (population) and t (time), it will result in net wealth W_after > W_before.
In order to mimic real-world scenario, the prob distribution has to be chosen such that the W_after is between 0.98 to 1.06 of W_before (in other words, between -2% to 6% growth, more or less). Anything far outside this bound would be highly unrealistic for a functioning economy.
However, when you impose this condition, you would realize that the (+1, +1) events have negligible impact, and that (-1, +1) type of events dominate. In other words, Norvig's conclusion pretty much does not change.
And that is my point. Mixing in a fraction of individual positive-sum interactions doesn't change the results, if the total wealth growth is capped based on real-world macroeconomic data.
No, you're missing the point.
0.98 to 1.06, to borrow your numbers, is the ratio of GDP one year to GDP the previous year. It is not the ratio of GDP accounting for positive-sum trades to GDP under only zero-some trades, and falsely equating those is disingenuous at best. The latter ratio might well be an order of magnitude larger.
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.
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?
Where did that 4-6% growth come from? Did it rain down from heaven and were all scrabbling for our share of it? No, it came from positive sum trades where value was added. An enterprise that develops a new technology, that makes an economic activity dramatically more efficient might sell that and become very successful. It might achieve 20% growth in its industrial sector and also boost the growth of its customers due to their better technology or more efficient services.
It’s _this_ sort of activity that much of that 4-6% overall growth is coming from. It’s not draining away growth from others, it’s making the growth in the first place.
I only assumed that to be charitable to OC's argument. If we don't assume that, then OC's criticism of Norvig's simulation assumptions is even more invalid (only slightly so though; it's already invalid enough).