The physics of wealth

Max Borders Editor, The Freeman
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How do you explain the gap between rich and poor? The social scientists and Wall Street occupiers have taken their crack at the question. Now it’s the physicists’ turn.

An engineering professor at Duke University (Adrian Bejan) and a physics professor at Boston University (Eugene Stanley) are independently leading researchers to answer questions about income inequality. And their answers are fascinating. The “gap,” they argue in different ways, is natural — much like gravity or running water.

Before the partisans start in, we should remind ourselves that Bejan and Stanley are doing science. They’re not trying to answer questions of value, the “ought” questions of wealth redistribution. They’re looking for facts. And their results could inform political discourse for a long time to come.

Few large and many small

I want to tell you about a very big idea.

It’s an idea that provides the first scientific basis for the oneness of nature. This new law of nature unifies all inanimate and animate phenomena under a single principle of physics. Adrian Bejan has taken this new law — which he calls the “constructal law” — and predicted everything from the behavior of swimming fish and branching trees to the development of transportation networks. Sounds out there, I know. But bear with me.

“Constructal theory,” says Bejan, “is the view that the generation of designedness in nature is a phenomenon of all physics.” And all physics includes “everything, animate or inanimate, geophysical and societal.” That’s a powerful claim. But Bejan is confident because his law has been so fruitful in its ability to explain so much. So what is it?

“According to constructal theory,” writes Bejan, “this phenomenon [design] can be reasoned on the basis of one law: designs persist in time by changing into configurations that offer progressively better access to the currents that flow through the territories.” The short version? Systems evolve according to their ability to handle flow. And Bejan has demonstrated the constructal law at work time and again, in wildly diverse contexts.

So what does this have to do with the rich-poor gap?

Bejan and collaborator Sylvie Lorente say these designs exhibit a property they call “few large and many small.” That means flow systems normally organize like river basins or veins in the body: big currents are connected to ever-smaller streams. If the law stands up across multiple areas — college rankings, well-paid jobs or wealth — all will exhibit a similar pattern.

More concretely, that’s why we have a few people with large net worth and many people with small net worth. Wealth distributes itself naturally this way — like a power law. But the distribution has a function. And function gives rise to form.

Form, according to Bejan, is about how things flow.

Consider the strong relationship between energy use and GDP. Advanced nations are wealthy because they can move stuff better than developing countries. Energy consumption is, simply said, a measure of moving stuff where it needs to go. The extent to which an entrepreneur, say, can make and move valued products, services or information is the extent to which he’ll be rewarded. And in the information space? Before Steve Jobs and Bob Metcalfe there was Bell, Morse and Gutenberg.

“Wealth is physics,” says Bejan. “Because wealth is in some sense flow and movement. And that is measurable. Wealth is not abstract.” Because wealth is connected to the physical world, Bejan thinks it underpins the evolved design of flowing economies.

Bejan and J. Peder Zane have written a book Design in Nature (to be published by Doubleday in January 2012).

Modeling the Matthew Effect

Some 2,000 years ago in the Gospel of St. Matthew, someone (presumably Matthew) wrote: “For to all those who have, more will be given.” Two thousand years later, people use this idiom to describe the dynamics wealth and status. More specifically, says Eugene Stanley, academics use it “to qualitatively describe the dynamics of individual progress and the interplay between status and reward.”

In other words, Stanley wants to explain why the rich get richer. With some sophisticated modeling, Stanley’s team claims to have proven the effect quantitatively — not just that it happens, but to some degree why it happens.

[W]e demonstrate testable evidence of the age-old Matthew “rich get richer” effect, wherein the longevity and past success of an individual lead to a cumulative advantage in further developing his or her career. We develop an exactly solvable stochastic career progress model that quantitatively incorporates the Matthew effect and validate our model predictions for several competitive professions. We test our model on the careers of 400,000 scientists using data from six high-impact journals and further confirm our findings by testing the model on the careers of more than 20,000 athletes in four sports leagues.

I am no mathematician. But if Stanley’s study is correct, he joins Adrian Bejan in showing that the accumulation of wealth among a few wealthy people is, well, a natural feature of an economy.

Implications for politics

“The rise of the new plutocracy is inextricably connected to two phenomena: the revolution in information technology and the liberalization of global trade,” says Chrystia Freeland in The Atlantic. Connected, yes. But there are deeper forces at work.

That wealth tends to concentrate among few people naturally is not an argument that it ought to. Nor is it an argument that it ought not to. But the functional aspects of Bejan’s and Stanley’s independent work on wealth disparity should raise important questions. In particular: When we try to interfere with the functions of a natural law — e.g. via government intervention and redistribution — do we run the risk of futzing up this flow system for everybody? After all, “freedom is good for design,” says Bejan.

We can’t answer such questions today. But Bejan and Stanley give us promising new entry-points for conversations about wealth, want and redistribution. If the American wealthy are the trunk in our economic tree of life, we may be wielding axes and saws at our peril.

Max Borders is a 2011-12 Robert Novak Fellow. He’s writing a book on wealth inequality.