Geoff Willis Risk Manager Geoff Willis Laser Econodynamics

Geoff Willis Risk Manager

Geoff Willis Laser Econodynamics: Relieving Poverty by Modifying Income and Wealth Distributions

Income Wealth Distributions - Assumptions • Boltzmann / gamma distribution base • Power law tail

Human Abilities • Normally distributed • Large offset from zero

Fig. 2 Offset Normal Distribution Average Value Proportion Skill

Income Distribution • Boltzmann – Skewed distribution – Top decile far above bottom decile • Rich earn many times more than the poor – Mode below Median • Majority of people have less than ‘average’ wealth – Approx 15% less than half mean • 15% permanently below ‘ relative poverty line’

Income Distribution • Boltzmann – skewed distribution – ‘unfair’ distribution • Boltzmann with Power Tail – even more skewed – even more ‘unfair’ distribution

Income Distribution • Boltzmann – Maximum entropy output – Independent of microscopic interactions – Difficult to change

Traditional methods of redistribution • ‘Communist’ methods – need totalitarian control – poor growth – still have poverty Fighting entropy – does not work

Traditional methods of redistribution • ‘Socialist / Social Democrat’ methods – need high levels of control – high levels of taxation – high welfare spending Fighting entropy – does not work well, expensive

Income Distribution • Boltzmann – Why a skewed distribution? Because – Closed at zero • Negative wealth / income not usually allowed – open ended in positive direction so Assymmetrical distribution True of most physical systems – but not all

Fig. 4 Fig. 5 + E E 5 - E Non lasing material Energy exchange to upper levels possible E 4 E 1 + E 54 - E 4 -1 Lasing material Energy exchange to upper levels not possible

Modified Distribution • No Upper Limit – Boltzmann distribution • Introduce Upper Limit – Maximum 6 energy units – Any interaction that results in more than 6 energy units is prohibited

Modified Distribution • Do same with income distributions: • Introduce Upper Limit – Maximum income per year – If a person earns more than set amount in 1 year (including fringe benefits etc) • Criminal offence • Sent to prison – If set max wealth at double mean wealth • Should get symmetrical distribution

Fig. 6 Average wealth Upper boundary Proportion w 2 w

Fig. 7 Average wealth Upper boundary Proportion w 1. 5 w

Fig. 2 Offset Normal Distribution Average Value Proportion Skill

Problems • Isolation – People affected by cap move to other country – Would need severe restrictions on freedom or very good international cooperation • Existing Rich would lose lots of money – Influential people! – Perceived to be unfair by many others

UK NES Data 1992 • 121, 000 people • Average income £ 297 pw • Maximum £ 1600 pw – In reality will be much higher • 5% above £ 600 – double maximum – Influential people!

Stepped Cap • Lowest cap level at 1. 5 times average – Raise with wage inflation • Highest cap level at current maximum – Not raised at all (effectively decreased) • Steps between max and min – Raised with cost inflation • Bottom end should slowly ‘pressurise’ Apply similar process to wealth

Possible Solutions • Stepped Caps • Caps on wealth – Eventually would reduce need for cap on income – But people allowed current wealth, and also locked wealth for retirement age (also capped) • Maximum wealth limits split on inheritance – (£ 1, 000 could be split into two limits of £ 500, 000 for two children)

Problems • Isolation – International agreement would take long time to resolve – Severe restrictions on freedom • Existing Rich would lose lots of money – Influential people! – Perceived to be unfair by many others – Stepped cap would take long time to have affect

Local Isolated Systems (Welfare Systems) • Set Up Required Conditions – Welfare scheme • (say 100 people) • Allowance – Only Recipients have allowance • Isolated System • (say Allowance of 120 units each) – Maximum Wealth – Pressurisation

Local Isolated Systems (Welfare Systems) • Coupon – Issued by government • Independent Unit of Wealth • (say 10, 000 coupons issued each week) • (equivalent to 100 per recipient) – Exchangeable • Freely Interacting

Local Isolated Systems (Welfare Systems) • Coupon – Can only be cashed in by people with allowance But – Distributed through Private Employers • Competition • Market Efficiency

Local Isolated Systems (Welfare Systems) • Government Give Allowance to Beneficiaries • Government Sells Coupons to Employers • Employers give Coupons to Beneficiaries – in exchange for labour • Beneficiaries cash in Coupons – But only to value of Allowance

Local Isolated Systems (Welfare Systems) • Ratio of Coupons to Allowance Only 100 Coupons for each 120 Allowance – Pressurisation – Competition – Inverted Distribution

Average wealth = Total Coupons Total Allowance Upper boundary Maximum Allowance Proportion w

Problems • • • Simplistic Expensive Separation of Society Collusion Cheating More details: cond-mat/0408227

Conclusions • If, Income / Wealth systems are – ‘thermodynamic’ – maximum entropy • Apply ‘thermodynamic’ solutions – use models from physics, engineering etc

Conclusion • Do not fight entropy • Use entropy

New Scientist - March 1993

Geoff Willis