Author Topic: pareto distribution  (Read 1667 times)

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Online Guillermo

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Re: pareto distribution
« Reply #30 on: September 11, 2018, 11:07:36 AM »


I plan on talking more about this in a future thread in the politics section.  Right now, I am trying to nail down this  Pareto distribution/ power law thing, and the statement I am trying to fact check is:

"All economies tend toward the same 20/80 split whether for income, wealth, land ownership, what have you. "



Make sure that this statement is exactly what the opposing argument is actually saying. By itself, it does not seem to be true, because an exact 20/80 power law distribution has very specific parameters that I doubt and is very unlikely that all economies would share. So youd have one example with a 20/78 another with a 20/95 another with... etc. You get the picture. Colloquially, when people say 20/80 they refer to de description of a minority of the data points contribute the majority of the effect (without specifying how much even if they are called with numbers).

So, if that is the statement as is, and it isn't an hyperbole, then it is false as stated.
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Offline Mr. Beagle

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Re: pareto distribution
« Reply #31 on: September 11, 2018, 02:37:41 PM »


I plan on talking more about this in a future thread in the politics section.  Right now, I am trying to nail down this  Pareto distribution/ power law thing, and the statement I am trying to fact check is:

"All economies tend toward the same 20/80 split whether for income, wealth, land ownership, what have you. "



Make sure that this statement is exactly what the opposing argument is actually saying. By itself, it does not seem to be true, because an exact 20/80 power law distribution has very specific parameters that I doubt and is very unlikely that all economies would share. So youd have one example with a 20/78 another with a 20/95 another with... etc. You get the picture. Colloquially, when people say 20/80 they refer to de description of a minority of the data points contribute the majority of the effect (without specifying how much even if they are called with numbers).

So, if that is the statement as is, and it isn't an hyperbole, then it is false as stated.

This is a well-stated summary of the issue.

The 80-20 mix comes about, I think, because of the natural way "stuff happens" in the universe, and you can probably trace the 80-20 as something akin how to the value e shows up in nature as the natural logarithm. But then other forces acting on the population can "disturb" the natural equilibrium.

I use as my example here the inventory of a book publisher I worked with for many years. For decades they had a near-perfect Pareto 80-20 inventory mix in terms of sales dollars versus titles, to the point of being spooky. Then, when the book business began to fall apart, one title began to dominate the mix and the lesser titles started to fall off, moving it closer to 90-10.

A book distributor we were in association with during my England years called this the "Harry Potter phenomenon." For years they had set their systems up to manage an 80-20 inventory mix (you set up your entire warehouse based on the mix) and then one small British publisher they distributed published the first Harry Potter book. Every time a new title in the series came out, their business went to about 95-5 for several months, and then came back to normal.
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Offline Ted Apelt

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Re: pareto distribution
« Reply #32 on: September 11, 2018, 03:16:35 PM »
I have no idea why you even brought up Lenin in this conversation. He has nothing whatsoever to do with the topic or anything I said before you brought him up. I said that although Marx was mistaken when he predicted that socialism and communism would replace capitalism, he correctly answered the question of why wealth becomes concentrated.

I am agreeing with you that there's nothing "natural" or inevitable about the 80/20 split, though it may have been the existing figure in Pareto's day. But the reasons have been answered. Your crusade to answer the question of "why?" comes 150 years too late.

I was responding to "He completely missed the mark when he predicted that socialism would supersede capitalism, and then lead to communism and the withering away of the state" with an explanation of WHY things did not go the way Marx wanted and expected them to.  It was not that his ideas were inherently flawed, as people keep saying.

I am not saying that you intended to imply that his ideas were flawed.  However, there are many people who believe this to be true, and think that Marxism inevitably leads to a dictatorship.
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Offline Ted Apelt

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Re: pareto distribution
« Reply #33 on: September 11, 2018, 03:27:15 PM »

Make sure that this statement is exactly what the opposing argument is actually saying


Read everything he is saying in https://www.quora.com/What-are-the-reasons-for-income-inequality and note the smugness and condesending attitude, as well as a complete lack of facts to back up what he is saying.  Please.  Read what this guy is saying.  You will then understand why I said the things I did.

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Offline Ted Apelt

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Re: pareto distribution
« Reply #34 on: September 11, 2018, 03:34:45 PM »
The issue is:  Can this be explained by any type of power-law relationship?

So, the power-law distribution of each year is changing.

How can it be called a "law" if it keeps changing?


The distribution changes. The power law is the description of said distribution. As with newton's laws, applying a force on a mass changes the acceleration. You change the mass and the acceleration changes. The law doesn't change.
The Power law doesn't specify values, just the description and the parameters it needs to fulfill said description.

OK, that makes more sense.  The important thing is that the ratios CAN be changed by human behavior, which is what I was arguing.  The person I was arguing with was saying that there was nothing that could be done to change the ratio.
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Offline PANTS!

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Re: pareto distribution
« Reply #35 on: September 11, 2018, 03:39:35 PM »
Think of the rule as describing a ratio that nonlinear systems seem to tend towards.  Often called a strange attractor.  Glick best described it as a bowl with a marble in it.  The marble will tend towards the bottom of the bowl.  It may roll around within that area, but in general, marbles close to the bottom of that bowl will end up in the bottom of the bowl.

Now, you always can perturb a system to where it devolves into chaos or to where it finds another strange attractor.  Should it find a new strange attractor, it does not mean the old one no longer exists.  Nonlinear systems are riddled with strange attractors.  Still - to your point - stating that systems tend towards that ratio is by no means proof that a system has settled in that ratio.  I think that is the argument you want to make here.  Just because the Pareto ratio exists is not a proof that the system is in that state right now.   It is not a law of nature, more like an observed phenomenon that occurs from time to time - I's not Newton's Corpuscular theory of light, its a rainbow.   :laugh:
« Last Edit: September 11, 2018, 03:43:31 PM by PANTS! »
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Offline daniel1948

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Re: pareto distribution
« Reply #36 on: September 11, 2018, 04:37:20 PM »
I have no idea why you even brought up Lenin in this conversation. He has nothing whatsoever to do with the topic or anything I said before you brought him up. I said that although Marx was mistaken when he predicted that socialism and communism would replace capitalism, he correctly answered the question of why wealth becomes concentrated.

I am agreeing with you that there's nothing "natural" or inevitable about the 80/20 split, though it may have been the existing figure in Pareto's day. But the reasons have been answered. Your crusade to answer the question of "why?" comes 150 years too late.

I was responding to "He completely missed the mark when he predicted that socialism would supersede capitalism, and then lead to communism and the withering away of the state" with an explanation of WHY things did not go the way Marx wanted and expected them to.  It was not that his ideas were inherently flawed, as people keep saying.

I am not saying that you intended to imply that his ideas were flawed.  However, there are many people who believe this to be true, and think that Marxism inevitably leads to a dictatorship.

He did completely miss the mark! He never imagined a violent revolution in Russia. He imagined a democratic transformation in America. He was wrong. The fact that Lenin and later Stalin used his name in their overthrow of the Tsars had absolutely nothing whatsoever to do with the fact that he was wrong about what would happen. In fact, it is one more example of his being wrong, as already noted. Marx was spot-on about history up to his own time, and completely wrong about what would happen later.

Completely irrelevant to the topic of "Why does wealth become concentrated?"
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Offline jt512

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Re: pareto distribution
« Reply #37 on: September 12, 2018, 11:22:21 AM »
I think the guy who is saying that all the economies follow the 80/20 rule, he is saying it colloquially as a rule of thumb. In other words, he is saying that a small portion of the population controls the majority of the wealth, and that he is describing as a 80/20.

I don't think you understand what I am saying.  Let's try this again one more time.



The issue is not some value being either 20 or something else.  The issue is not less than half of the population controlling the majority of the wealth.  (The only way this would not be the case is all people having exactly the same amount of wealth, which is a totally stupid straw man argument that almost no one is calling for.)  The issue is:  Can this be explained by any type of power-law relationship?


There may well be a power-law distribution that fits those numbers, but no standard Pareto distribution does.  Looking at the last year's data for net worth, the table shows that the top 20% of the population own 88.9% of the total net worth.  This implies that, if a Pareto distribution fits the data, it is the Pareto(1.278) distribution.  But the Pareto(1.278) distribution implies that the top 1% of the population would own 71.6% of the net worth.  However, your table shows that the top 1% of the population only owns only about half this amount (36.7%).  So no standard Pareto distribution fits these data.  The financial wealth data show a similar contradiction.

Since you only have two independent data points for each year, you can certainly fit some power-law distribution to those two points.  But you don't have enough data points for any one year to determine if a power-law distribution really fits the whole range of data.
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Offline Vicarious

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Re: pareto distribution
« Reply #38 on: September 14, 2018, 07:51:34 AM »
I have no idea why you even brought up Lenin in this conversation. He has nothing whatsoever to do with the topic or anything I said before you brought him up. I said that although Marx was mistaken when he predicted that socialism and communism would replace capitalism, he correctly answered the question of why wealth becomes concentrated.

I am agreeing with you that there's nothing "natural" or inevitable about the 80/20 split, though it may have been the existing figure in Pareto's day. But the reasons have been answered. Your crusade to answer the question of "why?" comes 150 years too late.

I was responding to "He completely missed the mark when he predicted that socialism would supersede capitalism, and then lead to communism and the withering away of the state" with an explanation of WHY things did not go the way Marx wanted and expected them to.  It was not that his ideas were inherently flawed, as people keep saying.

I am not saying that you intended to imply that his ideas were flawed.  However, there are many people who believe this to be true, and think that Marxism inevitably leads to a dictatorship.

He did completely miss the mark! He never imagined a violent revolution in Russia. He imagined a democratic transformation in America. He was wrong. The fact that Lenin and later Stalin used his name in their overthrow of the Tsars had absolutely nothing whatsoever to do with the fact that he was wrong about what would happen. In fact, it is one more example of his being wrong, as already noted. Marx was spot-on about history up to his own time, and completely wrong about what would happen later.

Completely irrelevant to the topic of "Why does wealth become concentrated?"

You say that now with hindsight. But at the time this was very much seen as a way of implementing Marxist socialist ideas through revolution and the left was all in sympathizing with Mao, Lenin and a host of African and South American revolutionaries like Mugabe, Somoza and Chaves. After they all turned out to morph into totalitarian dictatorships, the left simply moved the goal post, claiming that this was not “real” Marxism and washed their hands with the history of communism and rebranded. They did learn a thing or two though, the need for democratic “revolution”, and the usefulness of a free market due to the complexity of the world made state economy almost impossible and unstable. The right realized that an unregulated market devolves to monopoly and extremely inequality and power imbalance. So now the difference between the left and the right is about 2pp of tax, how many genders there are, and how many immigrants should be allowed into the country. I’m speaking about Europe btw. The US is a bit different for better or worse.

Offline fuzzyMarmot

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Re: pareto distribution
« Reply #39 on: September 14, 2018, 10:13:08 PM »
Think of the rule as describing a ratio that nonlinear systems seem to tend towards.  Often called a strange attractor.  Glick best described it as a bowl with a marble in it.  The marble will tend towards the bottom of the bowl.  It may roll around within that area, but in general, marbles close to the bottom of that bowl will end up in the bottom of the bowl.

Now, you always can perturb a system to where it devolves into chaos or to where it finds another strange attractor.  Should it find a new strange attractor, it does not mean the old one no longer exists.  Nonlinear systems are riddled with strange attractors.  Still - to your point - stating that systems tend towards that ratio is by no means proof that a system has settled in that ratio.  I think that is the argument you want to make here.  Just because the Pareto ratio exists is not a proof that the system is in that state right now.   It is not a law of nature, more like an observed phenomenon that occurs from time to time - I's not Newton's Corpuscular theory of light, its a rainbow.   :laugh:

I think you are using the term "strange attractor" when you really just mean a stable fixed point (aka attracting fixed point, attracting equilibrium, etc.).

Offline PANTS!

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Re: pareto distribution
« Reply #40 on: September 14, 2018, 10:16:04 PM »
A strange attractor is a stable fixed point, yes.  I could have also used the term local minimum, which is also a stable fixed point.
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Offline fuzzyMarmot

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Re: pareto distribution
« Reply #41 on: September 14, 2018, 10:27:06 PM »
I think you are incorrect about this, PANTS!. Strange attractors have fractal dimension; stable fixed points do not.

I'm sorry to be a pedant. I don't want to detract from the main discussion!

Offline Ted Apelt

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Re: pareto distribution
« Reply #42 on: September 15, 2018, 11:55:30 AM »
You say that now with hindsight. But at the time this was very much seen as a way of implementing Marxist socialist ideas through revolution and the left was all in sympathizing with Mao, Lenin and a host of African and South American revolutionaries like Mugabe, Somoza and Chaves. After they all turned out to morph into totalitarian dictatorships, the left simply moved the goal post, claiming that this was not “real” Marxism and washed their hands with the history of communism and rebranded.
Marx never advocated central planning or government control.  He wanted workers to have direct control over the work they did and the rewards of doing the work.  The early Marxists formed “soviets” that were small groups that decided on things in a town meeting style.  Lenin hijacked his system, destroyed the soviets, and replaced it with central planning.  The Marxists fought back with the Kronstadt rebellion, but got crushed. Why did this happen if what Lenin wanted was  “real” Marxism and the early soviets were not  “real” Marxism?
https://en.wikipedia.org/wiki/Kronstadt_rebellion

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Re: pareto distribution
« Reply #43 on: September 15, 2018, 06:03:01 PM »
I don't accept the premise of complete equality of outcome being the desired condition.  Another observation is that most people move temporally from the lower percentiles into the higher percentiles as they age and acquire capital, both stock and personal. Also, some fall out of the top 1% over time.

I can accept that some of the distortion of gains, particularly at the high end are not equitable.  However the incentives in a free market create more prosperity for all even while this requires a non per-capita (uneven) distribution of income.


My view is that we should focus on helping people acquire personal capital, at all phases of development rather than simple redistribution of income.  This has the best chance of long term improvements in income and certainly leads to a more healthy psychological state of achievement vs victimhood. 

I sympathize with a view that extreme wealth may not be justified and may be partially caused by an injustice.  Our relatively progressive income tax is an a example of trying to deal with this concern where the calculus of the true inequity is not easily determined.


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