12/5/2021 The free market is a rigged casino

The free market is a rigged casino

So much for notion that redistribution of wealth is soft-hearted generosity pandering to the lazy

 Thu, Dec 5, 2019, 00:00

William Reville 

A
n amazing article called The Inescapable Casino, written by mathematician Bruce Boghosian of Tufts University in the
November edition of Scientific American, merits great attention. Boghosian and others have developed a mathematical
model that accurately reproduces real-life wealth inequalities in a wide range of free-market countries.

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This model also shows that in a pure free-market economy, ie in the absence of wealth redistribution mechanisms, all the wealth
inevitably falls into the hands of one or a few people (an oligarchy).

Mathematical analysis such as this is critically important today because wealth inequality is escalating across the world (eg Russia,
India, Brazil), particularly in the United States. Boghosian quotes the report from investment bank Credit Suisse that the fraction of
global household wealth owned by the richest 1 per cent of the world’s population increased from 42.5 per cent to 47.2 per cent
between the financial crisis of 2008 and 2018. Today, Oxfam estimates that 26 individuals own as much household wealth as the
entire bottom half of the world’s population – about 3.5 billion people.

The most striking thing to me about Boghosian’s paper is the mathematical description of wealth distribution in a pure free-market
system. In this economy innumerable pairs of people sell and buy goods to and from each other over and over again, agree on a price
and shake hands. Assuming the system is initially symmetrical, ie everyone starts out with equal wealth, everyone acts fairly and
everyone is equally industrious and bright, how will it evolve?

Initial symmetry broken

Well, amazingly, to me anyway, mathematics shows that, once the initial symmetry is broken, which inevitably happens (despite thei
best intentions, some people will either overpay or accept less than an item is worth, thereby transferring some wealth between them)
further transactions inexorably transfer all the wealth into the hands of a few individuals, an oligarchy, and everybody else ends up
with little or nothing. Living in a pure free-market is, for the great majority of people, like gambling in a casino rigged to favour the
house.

Of course oligarchies don’t usually arise in real-world economies because pure free-markets are subjected to modification through
government-enforced redistribution of wealth from the richer to the poorer. When the mathematical model described by Boghosian is
modified to accommodate typical mechanisms for redistribution of wealth, wealth distribution stabilises and oligarchies don’t appear
Applying this mathematical model to real world economies predicts the empirical data on wealth distribution in America and Europe
between 1989 and 2016 with better than 2 per cent accuracy.

“
Wealth redistribution is absolutely required on scienti c grounds in order to set limits on
inequality and to give everyone a chance to thrive

Wealthy people enjoy various wealth-attained advantages relative to poorer people, for example lower interest rates on loans and
availability of money to buy when prices are low. Factoring wealth-attained advantage into the mathematical model, and a factor to
accommodate negative wealth (some people are in debt), further improves the model’s ability to predict empirical wealth distribution
data.

Boghosian’s model

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12/5/2021 The free market is a rigged casino

In Boghosian’s mathematical model, no wealthy oligarchy is possible when wealth-attained advantage is less than wealth
redistribution, but when it is greater than wealth redistribution oligarchy suddenly appears. Boghosian explains that this is probably
what happened when the USSR finally broke up in 1991.

The former USSR republics suddenly experienced dramatically reduced government wealth redistribution, coinciding with a sharp
increase in wealth-attained advantage from privatisation and deregulation. This threw these countries into a wealth-condensing state
and many quickly became partial oligarchies.

Boghosian’s mathematical model offers a powerful means of analysing wealth distribution in market economies, allowing
governments to adjust wealth redistribution and wealth-attained advantage to ensure equitable distribution of wealth and to avoid
conditions that would precipitate the emergence of oligarchies or economic stagnation (overdoing wealth redistribution would create
economic stagnation, penalising everybody).

Startlingly counterintuitive
The mathematical demonstration that a pure free-market economy concentrates almost all wealth in the hands of a few, regardless of
the industry or cleverness of the rest, is startlingly counterintuitive. Wealth redistribution is therefore absolutely required on scientific
grounds, not exclusively on ethical-philosophical grounds, in order to set limits on inequality and to give everyone a chance to thrive

So much for the traditional notion, popular in some quarters, that redistribution of wealth is soft-hearted generosity that panders to th
lazy and the shiftless and penalises the clever and the industrious. In the absence of redistribution almost everybody suffers
grievously, the lazy and the industrious alike.

William Reville is an emeritus professor of biochemistry at UCC

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NEWEST OLDEST 6 COMMENTS

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equalitymatters 1 year ago

EQ
It is indeed great to have a scienti c model. However similar to climate science, there will be deniers. I wouldn't agree it was
counter intuitive. I was young when I rst said to a friend something along the lines of.. "in a truely free market, one person or
corporation would eventually acquire everything and lead to totalitarianism". It seems ironic, but shouldn't be, that at both ends of
the political/economic model spectrum, we nd totalitarianism. Its zin and zang. Its nature. Free or ... » more

equalitymatters 1 year ago

EQ
Reply to @equalitymatters: Sorry. Spell check. Should read "yin and yang" But zin and zang is ne also :-)

JosephRyan 1 year ago

JO
The people with the power to change, for now, to change wealth distribution care neither for ethics or science. But it's good to hear
that the hoi polloi have science and mathematics on their side. Trump, Putin, Xhi, Èrdogan, Orban, Bolsonaro, Kim Jung Un, Duterte,
Crown Prince Bone Saw, and others will be suitably impressed.

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12/5/2021 The free market is a rigged casino

patrickDavey 1 year ago

PA
There was an article in the New Scientist twenty years ago where they had modeled wealth distribution using the same equations
that show why random monstrous waves appear in the ocean and they came to exactly the same conclusion. A random, tiny
random advantage will continue to accumulate advantage until it takes over the entire scene.
Pure free markets don't work any more than pure 'communist' markets do.

DavidODonnell 1 year ago

DA
Thanks for bringing this to our attention. Sadly, free(sic)-market ideology, dominance of radical individualism, and capture of the
political system and most media and business schools by the billionaire class remains dominant.
One of the ideological architects of the free(sic)-market ideology, which led to the nancial system 'bust' in Ireland [est. by Patrick
Honohan at ~€100 Billion loaded on backs of Irish Citizenry], is to be honoured by the University of Limerick with her own personal
... » more

EndaOBrien 1 year ago

EN
This "natural" process of wealth concentration into fewer and fewer hands has also been demonstrated using empirical data by
Thomas Pickety in his book "Capital in the Twenty- rst Century".

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