In June 1946 Max Planck spoke in the Göttingen physics colloquium. Planck was 88 years old, had received the highest honors of his community, including a Nobel Prize in 1918 for his discovery of the quantum, and had profoundly changed how we think about physical reality. He knew something about problems, both in science and in life. He postulated the quantum, famously, “in an act of desperation.” His first wife died young, as did four of his five children, the fourth, Erwin, killed by the Gestapo in 1945. Having lived through all of this, Max Planck decided to talk about problems that are nothing but distraction — scheinproblems.
The most interesting scientific projects are those that surprise, when the mathematics, or the code, tells us something we didn’t expect. In our study of US wealth dynamics that’s what happened. We wrote it up in a paper, but that’s only the end product not the curious route by which we got there. Hence this post.
This is a bit of LML jargon that we felt is worth promoting, even though it’s terribly unfair to a great mathematician. So please, you admirers of Laplace, don’t take offense. What’s the story?
In 1738 Daniel Bernoulli wrote his famous paper that introduces expected utility theory and thereby defines the basis of neoclassical economics — macro and micro. Since you ask: this paper is famous for its treatment of the St. Petersburg paradox. The “paradox” goes like this:
Scientific theorizing is indeed about finding something reliable in the world — if we’re lucky something reliable enough to be called a law. Why do we want something that doesn’t change? Deep question. Here’s a practical reason: we aim to capture it with something that doesn’t change, namely with ink on paper. Stability, stationarity, ergodicity… are the holy grail of science.
The article summarizes reports of an increasing concentration of economic power (market capitalization, profits etc) in ever smaller numbers of American companies, so-called super-star companies in their respective sectors. Well-known examples are Google (or Alphabet) and Apple. But the trend, Zweig says, is broader, also occurring in supermarkets and real estate services.
This post is about mindset, culture, implicit assumptions. The big assumption in neoclassical economics is ergodicity, or equilibrium, or stationarity, or stability — basically the idea that nothing ever changes fundamentally. Things may fluctuate but they always return to some state of normality. Naively, that doesn’t fit with the idea of a growing economy, innovation, and change. So something’s up. I’ll explore what that is by replacing the mental image of stability with something that doesn’t return to normality: a nuclear explosion.