Wednesday, June 4, 2014

Wealth Inequalities from Network Effects

Complex, self-organizing networks necessarily create conditions of "inequality."

In a living cell, there are many, many, many more water molecules than there are DNA molecules. Yet the DNA molecules are by far the largest molecules in the cell, and they are the most important (per individual molecule). Yes, one must have water to have a living cell, but one can have water without a living cell. To have a living cell, you need large biomolecules, and large biomolecules will, eventually, give you a living cell as they interact with each other. Still, without DNA, the cell will eventually succumb to entropy and fall apart.

In an ecosystem, there are many, many, many insects, especially social insects like ants and termites. The larger the animal (or plant) in the ecosystem, the fewer there typically are. The African savannah, for example, has relatively few elephants compared to antelope (let alone ants or termites). There are fewer baobab trees than grass. It would be downright silly to complain that the baobab trees are larger than the grass and that that is unfair to the grass. Get rid of the baobab trees, and a great deal of the ecosystem network will collapse. The same is, of course, true if you get rid of the grass.

Human social systems are similarly structured.

Take literary production, for example. There are many people who are very popular for a short period of time, but few who are popular for a long period of time. There are many more Grishams than Shakespeares. And there are, of course, many more unknown writers than known writers. The best-known writers are the rarest, with moderately-known writers having greater numbers, and unknown writers having the greatest numbers. Is it "fair" that Shakespeare is extremely well-known around the world, but my plays are not? Would we really want us equalized?

What is occurring in all of these cases is the creation of what are called power laws. There are power laws of size, longevity, and influence in any self-organizing network process. Shakespeare is "wealthier" than me as a playwright because he has more links than do I. And the more people know of him, the more he is read, leading to him being better known and influencing more people, leading people to read him even more. My influence is, to say the least, less. If I influenced one person, I'm lucky to have done so.

Wealth in the market economy works the same way. Some people engage in more market interactions than others. The more one engages in market interactions, the more others want to engage in market interactions with you. Trust grows, riches grow, and thus wealth grows. As a result, we will necessarily always get disparities in income and in riches and wealth. In the market, though, one is made wealthier by providing others with valuable goods or services (including labor).

Wealth in the political economy also works this way. There is power-wealth, of course (the President has more power than does a given Senator, who has more power than a given Representative, etc.), but in an economy in which the government is involved, government can also affect distribution of money. Regulations will result in different patterns of riches-distribution and income. So, too, will favors and cronyism, etc. As a result, one would expect there to be a power law distribution of politically-influenced money-based wealth in an interventionist, regulated economy.

In other words, one simply cannot expect a government to equalize wealth/riches/money distribution. All it will do is distribute the money differently than would the market, but also in a power law distribution. In the case of the market, money will be distributed according to who provides the most value, as determined by subjective value preferences averaged out through the market. In the case of the government, money will be distributed according to who provides the most political support to politicians. The former creates more wealth for everyone, while the latter actually destroys wealth through its redistributions (in networks, manually redistributing the network links weakens the network as a whole, and can lead to network collapse -- all of which is to say, it makes the network less wealthy and less healthy). In neither case will you get any actual equality of wealth distribution. But only in the former case will everyone be better off from the way the network emerges.

Monday, May 19, 2014

Network Effects Create Disparities, No Matter the Scale-Free Network

If differences among persons in capacities to produce economic values are accompanied by differences in capacities to produce values through the political process, the market and the collective-decision structure would tend to generate roughly the same results in all cases.
“Equality as Fact and Norm”Moral Science and Moral Order, Vol. 17 of The Collected Works of James M. Buchanan

What Buchanan is identifying here is network effects that exist regardless of the kind of social network with which one is concerned. Yes, free markets, being scale-free, self-organizing network processes, will create wealth disparities. The top 20% will have about 80% of the wealth. However, this is going to be true of any social network, whether it be a free market economy, the artistic order, or the political order. About 20% of the creative writers will have about 80% of the canon of great works. And if wealth is determined by the political order, you may rest assured that you will end up with 20% of the population having about 80% of the wealth.

What, then, is the difference? Well, the main difference -- and this is certainly a difference that makes a huge difference -- is that the free market is wealth-creating, meaning the wealth of the top 20% increases, but so, too, does the wealth of the bottom 80%. However, the political economy is not wealth-creating. It is riches-distributing, meaning it is in fact wealth-destroying. Thus, the top 20% become wealthier by the bottom 80% becoming poorer. The wealth disparities will continue to exist, whether one becomes wealthy through the market economy or through the political economy -- however, only one will create ever-more wealth for the poor to be better off as well.

Wednesday, February 12, 2014

Computing systemic risk using multiple behavioral and keystone networks: The emergence of a crisis in primate societies and banks

Computing systemic risk using multiple behavioral and keystone networks: The emergence of a crisis in primate societies and banks is an interesting article in comparative network dynamics. Specifically, they address network collapse. This is important in understanding economic crises. But banks only constitute one kind of social network within the market economy. It would be interesting to apply this data to other spontaneous orders as well.

Saturday, January 4, 2014

Complexity Drives Complexity

Complex environments result in the evolution of complex organisms. Of course, one should also point out that the presence of complex organisms results in a more complex environment. And heterogeneity results in a more complex environment as well.

Thus, once life emerged and began evolving, the living environment became more heterogeneous, and thus more complex. And this drove the evolution of greater complexity. Which drove the emergence of more complex environments. Which drove the evolution of greater complexity. Etc.

Which eventually get us to us. We also create more complex environments, within which we evolve more complexity. This is the argument of Gravesean psychology. Complexity drives complexity.

Thursday, January 2, 2014

Costs Create Small World Architecture in Networks

Where do small-world architecture in networks come from? According to Jeff Clune, "Once you add a cost for network connections, modules immediately appear. Without a cost, modules never form." This issue of a cost would also explain why market economies are self-organizing scale-free networks with small-world architecture. And not just market economies, but all large-scale social networks. Social interactions all have costs, which means the most efficient network architectures will evolve. The existence of costs is most obvious in economics, but you will find costs in any network -- whether social, neural, or molecular.

Thursday, September 5, 2013

The Self-Interested Society Is Spontaneous Order Society

Among the main requirements for the emergence of a complex, scale-free social network process -- a.k.a., spontaneous order -- are the breakdown of social hierarchies and, thus, the ability to freely enter and exit within the order. Kenneth Minogue explains how Westn-influenced cultures moved from hierarhical "just societies" to scale-free "self-interested societies'. Only if and when we become independent agents can spontaneous orders emerge.

Monday, August 12, 2013

The Human Brain's Flexible Hub Network

What causes humans to have such high intelligence? Evolutionary psychologists typically focus on modules, but humans also have a general intelligence that allows us to adapt to a variety of physical environments. It turns out that both explanations are true. The brain has a flexible hub that allows us to much more rapidly switch among modules. Not surprisingly, both individuation and generalization are in paradoxical tension in our brains, and contribute to our high intelligence.