Thoughts on Inequality

About a week ago, a professor sent me a link to an article discussing how free markets do not evenly distribute wealth but instead lead to wealth concentration. The article focused on the work of a Tufts University Mathematician, Dr. Bruce Boghosian, who has created a model that represents a simple free market to show how, as time progresses, wealth becomes more and more concentrated, into the hands of fewer and fewer people. Unlike traditional economic models, which presuppose that markets are built off of supply and demand that eventually equilibrate, this model assumes markets are exist transaction to transaction.
Known as the Yard Sale Model, this simplified market involves two actors. Each begin with 1.00 in currency. Every round, each actor has a 50% chance of winning and a 50% chance of losing. Every round, each actor invests an arbitrary amount of their currency but cannot invest more then they possess. Under these conditions, the actors cannot take losses greater than what they do not have and thus, wealth becomes concentrated as one of the actors gains more than the other, as rounds of the game progress.
Boghosian refers to this phenomenon as the wealth-attained advantage, which can be observed in real-world markets, both for the individual and the large firm. As an example, higher levels of capital mean better credit scores, more financial capital for investment, and most importantly, a greater ability to save. On the other hand, being poor means that a greater fraction of one’s money is spent on necessities like food, utilities, and healthcare while less is being saved. Over time, this concentration grows further and further until the economy reaches an oligarchy, controlled by the few.
A similar phenomenon can be observed in labor markets. Post-industrialism and globalized outsourcing has allowed for jobs previously filled by full-time employees to be filled by contractors, both domestically and abroad. Combined with decreasing strength of labor unions, once full-time positions are quickly turning into temporary or outsourced positions. Not only does this decrease the benefits associated with full-time positions but it also means that domestic workers and not just competing amongst themselves but also against workers across borders, where minimum wage may be lower or non-existent. This is turning labor into a spot market which ignores extra market values that once helped to govern markets through social values. Put simply, a few high-level individuals are allocating middle and lower level positions to cheaper labor sources. This allocative efficiency through perfect price discrimination is coming at the expense of social equity.
Marketization of society eliminates the imperative of the social contract of equity that cannot be account for in laissez-faire markets. Without these values, the existence of comparative advantage to an individual, firm, or nation will perpetuate economic inequality, as we have seen in the past few decades. While the free-market philosophy looks nice on paper, the manner by which it manifests itself in reality has proved to be detrimental to social equity when there is a lack of intervention to tame its power.