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.

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...

You could make a parameter for that wealth creation factor and see if the value affects the system dynamics.

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.

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.

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?

The alchemical transformation between needs is in fact what money is for. And money is lost in the transformation due to friction. The computer age is impressive but easily overlooks advances in fields, like Foucault's Order of Things and his presentation of Economic theory. Such awareness would prevent such drastic oversimplifications imo

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.

From another angle, why would the customer spend their time (which has value to them) in a transaction where they don't get any?

> From another angle, why would the customer spend their time (which has value to them) in a transaction where they don't get any?

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.

That’s a larger discussion but much of the economics of it gets cancelled out with the notion of “revealed preferences”. Economics doesn’t really account for whether an individual consumer is rational for buying junk food, scratch tickets, and liquor; it just sort of observes that you behave as though you want those things and models from there. The internal struggle of will between the “you” who binges on Oreos and store brand vodka and the “you” who wakes up on New Years morning with a hangover and a sincere desire to turn your life around isn’t necessarily within the scope of economics (unless the New Years Day “you” promptly purchases a gym membership that you never show up for!)

But we're talking about basic stuff here like buying bread...

Have you seen the variety of bread available, and the price range thereof? If all of it is purchased on rational valuation grounds, I think we must end up with a fairly loose definition of "value"

I'm sorry, but you still seem to be missing the point ? This isn't about bread varieties either, I would assume that most bread is bought within an order of magnitude of prices.

What's the difference between buying flour etc. to bake a cake to sell, and buying food to eat, so I can continue to function and sell my labour?

This is incorrect. You agree to trade because you value the food (and eating the food) more than the money. The store agrees to trade because they value the money more than the food. Each side is more satisfied after the trade than before. Hence it's non-zero sum.

If they don't buy it from the store, they have to make it themselves. Everybody are satisfied in the transaction because they played well on this trivial zero sum game instead of falling into a negative sum swirl.

By the way, economic concepts are statistics. Arguments are only meaningful on large number of samples or over long period of time.

It’s not... see https://www.google.com/amp/s/www.thestreet.com/.amp/politics...

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_surp...

In other words, if a banana costs $1 and I buy it, its value to me is at least $1

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.

The transaction has impacts beyond the immediate direct interaction, and those must also be considered. Examples:

* 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.

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

All value is subjective.

I disagree.

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.

No, the value of 3 dollars varies from person to person.

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.

Agreed. Have you seen any models or simulations of economies with subjective value? All I see are some 'objective' measures.

Behavioral economics is basically the study of economy with values assumed to be subjective.

But there are objective measures of value, such as the price you paid in a transaction.

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.

I would call market prices more “consensus” than “objective”, since they’re based on the aggregate subjective valuations of those involved in the market.

You can objectively point to them. The prices are visible for all to see.

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.

> 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-poo...

https://www.cnbc.com/2019/05/29/study-to-succeed-in-america-...

Just talking about tweaking simulation parameters here, since the original simulation parameters were supposedly meaningful.

>> 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.

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...

>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.

No, it isn't. That's not value - that's just rent-seeking i.e. moving money from one pocket to another.

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.

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.

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.

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.

> ... 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.

As others have said, a stagnant (0% growth) economy still has many positive sum trades within it. If all trading stopped happening, you wouldn't see the GDP remain at the same level; it would crash to basically 0 as almost no one would even have access to food.

>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.

> As others have said, a stagnant (0% growth) economy still has many positive sum trades within it.

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.

I don't know if you're misreading on purpose or missing a point.

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.

I'm neither misreading nor missing your point.

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.

>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.

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.

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.

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.

Redistribution, by whose power? Who has the right to decide what gets redistributed, and why? Is there a way to redistribute that is objectively fair?

That's a good question. The veil of ignorance concept espoused by Kant, Hobbes, Rawls among others is a good place to start imo.

The State endowed with its power by the citizens. What would be "objectively fair" ?

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?

You’re assuming the 4-6% growth is a given, and were all just fighting over our bit of it, but this is _completely_ backwards.

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.

Yes. except I suspect once you take negative externalities such as carbon emission into account the true rate is currently more like 1 percent if not actually negative.

> You’re assuming the 4-6% growth is a given ...

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).

Oh the OCs argument is silly, the simulation is about share of wealth not absolute wealth.

No capital powerhouse achieves 20% year over year. Some capital company maybe gets that each year, but they take losses in different years, so it's just swapping places. Berkshire Hathaway averages what, 9% a year?

It gets complicated when one is allowed to effectively "borrow from the future "...