The Mathematics of Economic Inequality

It's easy to imagine how wealth-attained advantage works in real life. "The people with that advantage receive better returns on their investments, lower interest rates on loans, and better financial advice," said Boghosian. "Conversely, as Barbara Ehrenreich famously observed, it is expensive to be poor. If you are working two jobs, you don't have time to shop for the best bargains. If you can't afford the security deposit demanded by most landlords, you may end up staying in a motel at inflated prices. The model tracks the data with remarkable accuracy, he said...

This is great work, though it seems to a large extent, mainly what these researchers are discovering is that capitalism and the "free market" are embedded in a set of non-market social relationships that tend to confer advantage to the advantaged (as most people, i.e., not free market fundamentalist economists, would find intuitive or even obvious). There may even be a connection to Coasian transaction theory: i.e., the market doesn't account for all trust factors, therefore market participants will resort to success and notoriety as a fallback mechanism to determine whether to engage in a transaction and prospectively make more money for both parties (Coase originally showed that corporations will form to lower "transaction costs" in what otherwise would be a decentralized market; and this work was extended in the early 2000s to explain the rise of open/collaborative information projects.).

To counteract this sort of effect, one could certainly argue for "redistribution". However, we'd argue that this is best done in the form of mechanisms to help increase "grassroots" access to capitalism (i.e., startup and small business funding, free entrepreneurial education, no taxes for small businesses, etc.)

All that said, we would argue that all of these emergent-inequality problems are made much worse by a biased central banking paradigm, and a political deck that stacks the economy against the little guy (both in "micro" ways, and in "macro" -- i.e., bailouts). Schumpeter observed ages ago that creative destruction was vital to capitalism -- we find it not coincidental, then, that periods of high inequality coincide with stagnation of the mechanism of creative destruction.