Friday, February 05, 2016

Wealth Feedback Patterns

In ecology -- and in systems theory generally -- we speak of feedback processes, which are responses within systems whereby outputs can affect inputs. They are of two basic kinds: positive and negative.

Positive feedback processes increase changes because the output "feeds back" to input in a way that causes more of the same kind of output. A common example is audio feedback, in which a microphone sends the amplified sound being output from the system speaker back through the amplifier, turning a small signal into a bigger one. Positive feedback processes help to accelerate changes.

Negative feedback is a process that tend to reverse changes. Perspiration is an example, since elevated body temperature leads to the transfer of moisture to the skin where it can evaporate and lower the temperature. Negative feedback processes help systems to tend toward stasis.

I often talk about these concepts in the context of climate change, since the warming signal triggers dozens of responses that feedback in either positive or negative ways, as defined above.

But the principles apply to all kinds of things, such as the economy and wealth distribution. Progressive tax schemes, for example, would be negative feedback mechanisms that slow changes in wealth distribution. To the extent that taxation causes the "rich to get poorer" or the "poor to get richer," negative feedback is at play.

But neither of those phrases sounds familiar, in part because we find so many mechanisms by which "the rich get richer" and "the poor get poorer." If that sounds a bit more familiar, it may be because so many processes work to reinforce changes in income. Earn a bit more money, and you might have a more reliable car, allowing you to earn more money. Suffer a financial loss from an unexpected car repair, and you might not have the money for gas to get to work. And so on.

As with climate change, the real world is complicated, and we all experience a lot of both kinds of feedback. Yet a Horatio Alger myth persists, suggesting not only that we can overcome poverty, but also that if we do not, it is our own fault. False hope ends up prevailing over solidarity, so that poor and middle-class folks often support policies that would only help them in the real world if they were actually rich.

All of which is by way of setting the context for an interesting set of studies that documents the degree to which one's wealth status is persistent across generation in the United States. The studies compare various measures of wealth and employment among adults with the economic status of their parents, and provides some insights into the reasons (feedback mechanisms) that tend to limit mobility.
Example: Earnings ranked by parental income
Note: Though it is not the focus of this research, the gender pay gap appears in all of the graphs cited
Exceptions abound, of course, but exceptions should not frame our policy choices. Sadly, they do.

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