Tag Archives: Benoit Mandelbrot

06.30.2011 | Are the Rich Getting Richer?

Their conclusion was clear. A recent Federal Reserve study tells us that the rich are getting richer. A closer look, though, reveals it is a lot more complicated.

We need to be aware of two issues.

How should we define income and wealth? Calculating income, certain variables are obvious such as wages. However, should we include workplace benefits? “Psychic income” from the environment is even a possibility. You might think “psychic income” is ridiculous but think for a moment about Manhattan and Missoula. If the cost of living is much higher in Manhattan than Missoula, should we add the “psychic income” of the pleasures of Manhattan to offset its added expense? Similarly, assessing wealth involves decisions about what to include. On page 32 of the Federal Reserve study, you can see the variables they selected.
Are the same people becoming more affluent or have others replaced them? A recent report from the Treasury tells us that the “rich” consistently change. As average net worth grows, different people move into the top “slots.”

Our point? Basing tax policy on income distribution statistics returns us to the mathematician, Benoit Mandelbrot. The closer we look, the more we see.

The Economic Lesson

Using Lorenz Curves, we can divide family incomes into quintiles and see the proportion of total national income possessed by each group. The answer, though, is only a starting point when we try to grasp income distribution.

An Economic Question: Knowing that income distribution is a complex subject, still, we can decide whether our bias is toward equality or efficiency. As a voter, would you prefer the equality that results from more redistribution through higher taxes or less redistribution that encourages competitive behavior and growth.

Posted by: adminEcon
Tags: Benoit Mandelbrot, income, income distribution, Lorenz Curves, tax policy, wealth
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06.07.2011 | How Many People Are Hungry?

The UN says that the problem is 1 billion hungry people. Columbia University scholar Jeffrey Sachs explains that the solution is foreign aid that attacks the “poverty trap.” Then, markets can develop and people can become more productive. By contrast, NYU scholar William Easterly says that aid is actually the problem. With free markets and the right incentives, success comes when people figure out their own solutions.

This Foreign Policy article on world hunger presents the debate and then the work of its authors, 2 scholars from MIT. Introducing people from Indonesia and India, they illustrate the complexities of world hunger. The discuss calories and productivity, the impact of pregnant women taking iodide pills and working men consuming iron supplements. They ask why people might choose tastier food rather than a healthier diet of eggs and bananas.

Here you can see UN graphs on hunger around the world. You might want to look at this Foreign Policy article and this article for some good discussion.

The Economic Lesson

How are world hunger and the British coastline similar? Mathematician Benoit Mandelbrot could tell us. Dr. Mandelbrot was the father of fractal geometry and the idea that the closer you look, the more you see. From a distance, the British coastline will appear straight. However, looking closer and closer increasingly reveals indents and zigzags. Consequently, Dr. Mandelbrot believed that it was actually much longer and even infinite. The significance? Something we might think is simple is really complex.

An Economic Question: Pondering how to diminish world hunger, consider the following from Duke University behavioral economist Dan Ariely. “…So we either simplify the problem and offer a solution, or embrace the complexity and do nothing.”

Posted by: adminEcon
Tags: Benoit Mandelbrot, Dan Ariely, FAO, Jeffrey Sachs, UN, William Easterly, world hunger
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03.08.2011 | Bikes-For-Hire and the British Coastline

London’s new bikes-for-hire program is about more than bikes.

Launched this summer, the program had to solve a mismatch between supply and demand. In certain places there were too few bikes for the number of people who wanted them. In other spots, the number of racks for dropping them off was inadequate. Checking the stats, one blogger cited the impact of weather and holidays on bike usage.

Also, the environmental impact was tough to assess. Seeing the trailers being used to transfer empty bikes to busier docks, concern developed that many were not attached to electricity-powered vehicles. Cutting emissions would be difficult because most people left mass transport to use bikes. The goal was to get them to stop using their cars.

Meanwhile, London’s planners, recognizing a potential tragedy of the commons, sought to avoid thefts and vandalism by buying heavy, 23kg, bikes and using a “complex system of keys and passcodes.“

Finally, one transport economist said that the bikes were solving the wrong problem. People had enough bikes. Citing the lack of safe bike lanes, he said, “It’s just that people are afraid to use them.”

A last thought–is London’s health insurance program involved if no helmets are provided?

The Economic Lesson

Mathematician Benoit Mandelbrot could tell us how bikes-for-hire take us to the British coastline.

Dr. Mandelbrot was the father of fractal geometry and the idea that the closer you look, the more you see. From a distance, the British coastline will appear straight. However, looking closer and closer increasingly reveals indents and zigzags. Consequently, Dr. Mandelbrot believed that it was actually much longer and even infinite. The significance? Something we might think is simple is really complex.

Perhaps many government programs, including bikes-for-hire, take us to the British coastline.

Posted by: adminEcon
Tags: Benoit Mandelbrot, bikes-for-hire, demand, supply, tragedy of the commons
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10.18.2010 | Macroeconomics and Mandelbrot

How are macroeconomics and the British coastline similar? Mathematician Benoit Mandelbrot could tell us.

Similarly, in the economic world, most policy decisions sound so logical. When people earn more, they spend and they save the extra income. If government taxes more, then it gets extra revenue.

However, as with the British coastline, looking closer reveals increasing complexity. In “The X Factor of Economics,” referring to the recent stimulus spending, Nobel Prize winner Robert Solow says, “One thousand other things were happening that had an effect on employment and the G.D.P.” With taxes, from a “distance” we see the rich, the middle class, and the poor. Looking closely, though, are countless variables that distinguish workers’ incomes.

Responding, Duke professor Dan Ariely comments, “…So we either simplify the problem and offer a solution, or embrace the complexity and do nothing.”

The Economic Lesson

In a Teaching Company lecture from his 20th Century economic history course, Macalester Professor Timothy Taylor explains why he thinks that the beginning of the 20th century was a turning point for macroeconomic policy. Citing the inception of the income tax, creation of the Federal Reserve, and new federal regulation, he discusses the changing role of government.

Posted by: adminEcon
Tags: Benoit Mandelbrot, fractal geometry, macroeconomic policy
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08.28.2010 | Double Dipping

For a smile, you might want to watch Merle Hazard’s “Double Dippin’” song. As the Guardian points out, also look for the fun trivia such as a small background picture of mathematician Benoit Mandelbrot.

No one was smiling, though in response to the 1.6% GDP revised growth rate for the second quarter. Thinking of future economic growth, economist Ed Yardeni, suggests three possibilities in a recent newsletter.

1) The contrarian view says the economy will boom. To generate a 3% growth rate, we would need more housing refinancing that would put money in consumer’s pockets and elevate consumer spending. Also, lower mortgage rates coud lead to more housing sales. Add to this solid corporate profits and higher real pay per worker because of productivity gain and you have a robust recovery. Most say the chances of a robust recovery are slim.

2) More and more people are concerned about a bust which takes us to the double dip scenario. The second dip would be caused by unimproved unemployment and plummeting consumer spending.

3) Muddling with ups and downs in different sectors is the third and most likely alternative. Muddling would be characterized by some employment gains, some housng improvement, some consumer spending.

A (trick) question: If the growth rate has moved from 3.7% down to 1.6% between the first and second quarter of 2010, then has the economy contracted? The answer: No. The economy continues to grow but at a slower rate.

The Economic Lesson

Let’s think of a double dip as a “W”. The U.S. has experienced 2 double dips during the past 80 years. Looking between 1930 and 1940, economic activity contracted 1930-1933, expanded 1934-1937, dipped in 1938, and then steadily grew. A much faster double dip happened between 1980 and 1982. 1980/down; 1981/up; 1982/ down.

Posted by: adminEcon
Tags: Benoit Mandelbrot, double dip, GDP, Great Depression, Merle Hazard, recession
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