WATCH out, here come the econophysicists! OK, so they may not come from a
branch of science you鈥檝e heard of, but you soon will if the physicists now
invading the quasiscience of economics have anything to do with it. Not to make
money, of course, but with that usual physicist鈥檚 hubris that they can explain
the world more simply than everyone else.
And, judging by the work of two Parisian econophysicists, they are making a
controversial start at tearing up some perplexing economics and reducing them to
a few elegant general principles鈥攚ith the help of some serious mathematics
borrowed from the study of disordered materials.
Jean-Philippe Bouchaud and Marc M茅zard set out to explain why every
country in the world has a few rich people and then a long tail of poorer and
poorer people, distributed according to a simple and unvarying statistical rule
(see 鈥淭hat鈥檚 the way the money goes鈥�).
In much of the Western world, 20 per cent of the people always own
80 per cent of the wealth. Economists have tended to look for explanations in
human terms鈥攊n the distribution of talent, for example. But why should the
distribution vary so little across cultures or over the past century?
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According to the physicists, it is all very simple. The distribution arises
from the unpredictability of life: if returns on investment are uncertain and
each person trades with a network of others, then inequalities in wealth will
arise wholly naturally. Even if we all started life with precisely the same
abilities and the same amount of money, over time we鈥檇 still end up with the
same distribution of rich and poor. It鈥檚 not just a law of economics but a law
of nature鈥攖he rich will always be with us.
If that sounds gloomily fatalistic, don鈥檛 abandon hope yet. Although the new
breed of econophysicists are a welcome breath of fresh air for economics, their
theories remain very general. They say nothing about individuals. Although the
mathematical distribution of rich and poor might be a law of nature, nothing is
said about who is going to be rich or poor. That remains dependent on the
individual, their opportunities and all the social policies that governments
must try to get right. After all, do most people really care if the rich are
always there, provided we have a chance to be among them?
Bouchaud and M茅zard鈥檚 theory might even add something to social
theory. From the equations they have borrowed from materials science, they
predict that societies will grow more equal if their economic 鈥渢emperatures鈥� are
higher. A high temperature means lots and lots of vigorous trading between more
and more people. Perhaps the fever-pitch Internet trading boom could prove an
antidote to inequality as more and more people participate in the random ebb and
flow of wealth.
Still feeling enraged that physics predicts the rich are an inescapable fact
of life? If you are an idealist, look at it another way. If the rich will always
be with us, so will the revolutionaries who want to terminate them with extreme
prejudice. If a new class of rich inevitably emerges after every levelling, then
so will a new class of malcontents to chop off their heads. If those French
physicists have it right, they might one day be able to predict when the wheel
will turn full circle and it is time to start sharpening the guillotine again.
Danton would be proud of them.
To hear the views of the econophysicists visit www.unifr.ch/econophysics