Inequality has been increasing globally for years, and developed nations have seen inequality rise in rates comparable to the start of the great depression. This situation is understandably problematic and worrisome. Accordingly, a lot of thinkers have looked into the problem, most solutions come down to some level of redistribution of wealth. The New England Complex Systems Institute has used a complex math approach to conclude that tax cuts will only make the gap between the rich and poor worse. The solution is, indeed, wealth redistribution.
Bar-Yam and his colleagues’ new research shows that a purely monetary solution to the US economy’s current imbalance is insufficient. Bar-Yam likened this to trying to drive a car by focusing only on the gas and brake pedals, and ignoring the steering wheel. In addition to interest rate regulation, Bar-Yam’s research points to a transfer of wealth to the less wealthy sectors of society as the most effective way to rebalance the consumption and production cycles.
This conclusion is based on response theory, a way of looking at complex systems by changing the environmental conditions to see how the system responds. Bar-Yam and his colleagues analyzed historical data to create models that showed how the US economy responds when the distribution of wealth between the production and consumption cycles are altered. Their models demonstrated that the Trump Administration’s current approach to economic growth—cutting government spending while slashing tax rates for the rich—is misguided.