RandomGuy
12-03-2010, 02:56 PM
Path Dependence
From the Harvard Business Review article, Wealth Happens:
The finding suggests that the basic inequality in wealth distribution seen in most societies may have little to do with differences in the backgrounds and talents of their citizens. Rather, the disparity appears to be something akin to a law of economic life that emerges naturally as an organizational feature of a network.
... random returns on investment drive a counterbalancing rich-get-richer phenomenon. Even if everyone starts out equal, differences in investment luck will cause some people to start to accumulate more wealth than others. Those who are lucky will tend to invest more and so have a chance to make greater gains still. Hence, a string of positive returns builds a person's wealth not merely by addition but by multiplication, as each subsequent gain grows ever bigger. This is enough, even in a world of equals where returns on investment are entirely random, to stir up huge wealth disparities in the population.
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http://www.exponentialimprovement.com/cms/disprove.shtml
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It is a natural dynamic. What he describes is known in system dynamics as "path dependence" and in systems thinking as the "Success to the Successful" archetype.
Seeing this natural process has led "conservatives" to believe that poverty is part of the "eternal order of things ... which never can be removed by legislation."
But that is not true; we need not condemn millions to poverty through no fault of their own. Economic "conservatives" do not want policies that avoid extreme poverty; they should have the courage to admit that's what they want.
This is not to deny that some individuals are largely responsible for their own problems. It's just that systems effects are way more powerful than they're given credit for being ... and libertarians deny systems effects even exist.
Many are told to take personal responsibility for their addictions that have driven them into poverty. But addiction is a human affliction, a trap that can snare almost anyone in one way or another.
In fact, our entire economic system is addicted to the quick fix. Addiction to growth, described in the Growth Facts of Life, has driven California to financial ruin and Colorado has followed in its path with its Proposition 13-like TABOR.
The "addiction to growth" dynamic explained: Growth with insufficient taxes brings in some immediate income, but not enough to cover long-term infrastructure costs as people move into an area. Those addicted to growth advocate even more growth to increase the tax base. But this only adds to the infrastructure backlog over the long-term.
Folks, such "economic growth" is what libertarians and other economic "conservatives" love, but it's the same structure as addiction to drugs, which they deplore as an individual weakness for which individuals must take "personal responsibility."
But they will not take personal responsibility for their policies creating infrastructure backlogs. No, they blame the financial problems in California on liberals who promote environmental protection that increases costs and makes the region less competitive. But environmental pollution is a redistribution of the costs of doing business onto the public; it's socialism on the cost-side -- a redistribution that should not be allowed.
We can change the dynamic to counteract some of the inequality. This can be done
With progressive income taxation,
by taxing capital gains and dividends at least at the rate that income is taxed (why discourage work relative to investment),
by not stealing regressive Social Security taxes for use in the general fund, and
by reducing regressive sales taxes.
For an experiential proof of path dependence, one only need play the game, Monopoly. In this game it's not necessarily the most intelligent or hard-working who wins; it can simply be the person who goes first, thereby getting ahead, and because of path dependence thereby getting even further ahead. On Monopoly strategy:
Monopoly involves a portion of luck, with the roll of the dice determining whether a player gets to own key properties or lands on squares with high rents. Even the initial misfortune of going last is a significant disadvantage because one is more likely to land on property which has already been bought and therefore be forced to pay rent instead of having an opportunity to buy unowned property.
by Bob Powell, 3/28/09 (http://www.exponentialimprovement.com/cms/disprove.shtml)
From the Harvard Business Review article, Wealth Happens:
The finding suggests that the basic inequality in wealth distribution seen in most societies may have little to do with differences in the backgrounds and talents of their citizens. Rather, the disparity appears to be something akin to a law of economic life that emerges naturally as an organizational feature of a network.
... random returns on investment drive a counterbalancing rich-get-richer phenomenon. Even if everyone starts out equal, differences in investment luck will cause some people to start to accumulate more wealth than others. Those who are lucky will tend to invest more and so have a chance to make greater gains still. Hence, a string of positive returns builds a person's wealth not merely by addition but by multiplication, as each subsequent gain grows ever bigger. This is enough, even in a world of equals where returns on investment are entirely random, to stir up huge wealth disparities in the population.
----------------------------
http://www.exponentialimprovement.com/cms/disprove.shtml
---------------------------------
It is a natural dynamic. What he describes is known in system dynamics as "path dependence" and in systems thinking as the "Success to the Successful" archetype.
Seeing this natural process has led "conservatives" to believe that poverty is part of the "eternal order of things ... which never can be removed by legislation."
But that is not true; we need not condemn millions to poverty through no fault of their own. Economic "conservatives" do not want policies that avoid extreme poverty; they should have the courage to admit that's what they want.
This is not to deny that some individuals are largely responsible for their own problems. It's just that systems effects are way more powerful than they're given credit for being ... and libertarians deny systems effects even exist.
Many are told to take personal responsibility for their addictions that have driven them into poverty. But addiction is a human affliction, a trap that can snare almost anyone in one way or another.
In fact, our entire economic system is addicted to the quick fix. Addiction to growth, described in the Growth Facts of Life, has driven California to financial ruin and Colorado has followed in its path with its Proposition 13-like TABOR.
The "addiction to growth" dynamic explained: Growth with insufficient taxes brings in some immediate income, but not enough to cover long-term infrastructure costs as people move into an area. Those addicted to growth advocate even more growth to increase the tax base. But this only adds to the infrastructure backlog over the long-term.
Folks, such "economic growth" is what libertarians and other economic "conservatives" love, but it's the same structure as addiction to drugs, which they deplore as an individual weakness for which individuals must take "personal responsibility."
But they will not take personal responsibility for their policies creating infrastructure backlogs. No, they blame the financial problems in California on liberals who promote environmental protection that increases costs and makes the region less competitive. But environmental pollution is a redistribution of the costs of doing business onto the public; it's socialism on the cost-side -- a redistribution that should not be allowed.
We can change the dynamic to counteract some of the inequality. This can be done
With progressive income taxation,
by taxing capital gains and dividends at least at the rate that income is taxed (why discourage work relative to investment),
by not stealing regressive Social Security taxes for use in the general fund, and
by reducing regressive sales taxes.
For an experiential proof of path dependence, one only need play the game, Monopoly. In this game it's not necessarily the most intelligent or hard-working who wins; it can simply be the person who goes first, thereby getting ahead, and because of path dependence thereby getting even further ahead. On Monopoly strategy:
Monopoly involves a portion of luck, with the roll of the dice determining whether a player gets to own key properties or lands on squares with high rents. Even the initial misfortune of going last is a significant disadvantage because one is more likely to land on property which has already been bought and therefore be forced to pay rent instead of having an opportunity to buy unowned property.
by Bob Powell, 3/28/09 (http://www.exponentialimprovement.com/cms/disprove.shtml)