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Abstract. We model a macroeconomy with stock flow consistent national accounts built from the local interactions of heterogenous agents (households, firms, bankers, and a government) through product, labor, and money markets in discrete time. We use this model to show that, without any restrictions on the type of interactions agents can make, and with asymmetric information on the part of firms and households in this economy, power-law dynamics with respect to firm size and firm age, income distribution, skill set choice, returns to innovation, and earnings can emerge from multiplicative processes originating in the labor market.

JEL Codes: C63; C15
Keywords: Inequality, Agent Based Macroeconomics, Econophysics.

6 Responses to “Income Distribution in a Stock-Flow-Consistent Model with Education and Technological Change”

  1. Brian O' Hanlon

    I was having quite a lot of fun word-playing with some research into Tyrannosaurus Rex by professors Ruxton and Houston at Glasgow university which developed into a rushed blog draft here:

    http://designcomment.blogspot.com/2010/04/t-rex.html

    The basic point was the researchers from Glasgow took real data they obtained from a natural ecosystem of the Serengeti in Africa and applied what they found to try and discover something about T-rex, all those thousands of years ago.

    If one really does stretch one's imagination, it is perhaps possible to think about Irish companies and Chris Horn's points, that in Ireland we tend to build companies to scale, rather than to help in wealth creation. The purpose of households all over Ireland for the last decade, has been to support a couple of big dinosaurs who grew up in the environment here in Ireland - savenging and preying on whatever they could. The point is, households are not well served by that kind of entreprise culture.

    Steven Collins, political editor with the Irish Times had an interesting piece, Crisis may help parties develop a new level of maturity, which I liked in the same blog entry on T-rex. Collins noted how FF were committed to party and nation, but not to state. FG the opposite, were committed to the state, but not to party or nation.

    I don't know if any economists have tried to collect any data on the Irish semi-state companies, their origins, development and behaviours. But it would be a useful area of study. It could put some more historical context to Chris Horn's comments about wealth creation in Ireland.

  2. Stephen

    Hi Brian, loads of data on semi states is collected by Forfas/IDA/Enterprise Ireland/CSO, but not in a coherent way I think, though I'm not an expert on the topic, one of my colleagues, Dr Palcic, is. I'll ask him about it. I know the semi-states have been studied to death by IR/Personnel and Employment folk. The notion of anyone else deciding the scale of a semi state wouldn't play well in Dail Eireann at the moment--they can't even regulate semi state pay!

  3. Brian O' Hanlon

    It's a big, big, big subject, but I could utter a few more words. I got to listen to Tom Garvin, UCD historian at the Royal Irish Academy late last year on the subject of Lemass. It was interesting I must say. Lemass compiled together a lot of information in the days prior to a lot of travel and communications. For instance, Lemass found there could be a company in Cork which manufactured shoes for decades, and another very similar one operating somewhere else in the country - say for instance, Drogheda. But one company had no idea the other one even existed.

    But what happened after this, is a story which needs to be told better, by people with rigourous economic insight. As I mentioned in the 'T-rex' blog entry, the Irish food industry boiled down to only four major players, most of whom are now departing the scene here. I don't know exactly who would be best able to engage in the task of analysing this. But bear in mind, much of the social memory will not be around much longer. Maybe it is important to look at the history of Irish semi-states. I might place the entreprise culture in Ireland today, in a larger context. Here is one scrap I managed to collect, from a physicist who was employed at Aer Lingus in the early days. It gives you a flavour of what those guys were at back then.

    We were using a computer model of the overall airline it its market in the context of the decision what type of aircraft to purchase next. We were doing this in the mid-60s. Aircraft manufacturers queued up to see what we were up to; they thought aircraft design was the computer role.

    We also exposed why the original IBM real-time reservations system, which had been installed in American Airlines, and which Aer Lingus were contemplating buying, saturated at 1/3 of its planned capacity. Its designers had assumed average values and had not allowed for the stochastic environment. We built a model of the system based on queue theory which came up with a real measure of its performance.

    Something else to bear in mind also, is how the British really did blow it with the computer industry in post war times. I mean, with Bletchley park etc, they were ahead of the entire world. What did they do after WWII? They broke up their computational machines in case anyone would figure them out. Guys such as Gordon Clarke, who worked at AerLingus and wrote the first computer program in Ireland, was trained over in Britain. When I spoke to Gordon last year, he said he was disappointed with his sum achievements in life - as the Irish semi-states didn't appear too interested in driving innovation.

    Now we look at Farmleigh conference with McWilliams and so forth. But when Kennedy (he of 'man on the moon' fame) came to Ireland in the 1960s, they only were interested in tin whistles and ceili dancing. Lemass apparently was very disappointed that the Kennedy visit to Ireland, wasn't able to create better connections between the two countries from a technology and industry point of view. Despite what George Lee talks about in his TV series, the Ireland of the 1990s, was the vision of Lemass in realisation. I think Lemass and many others would have been happier to reach that vision 20 or 30 years earlier.

    I was talking about that BBC 2 program on the history of the Treasury in the UK. One of the themes that went right through the post war history of the Chancellor of the exchequer, and his relationship to the prime minister's office, was the fact the Germany experienced such growth and development, while Britain was still trying to launch its big recover as late as the 1960s and 70s. The same frustration of course was experienced in Ireland.

    http://www.stephenkinsella.net/2010/03/30/in-effect/#comment-13830

  4. Brian O' Hanlon

    Ireland and Tammany hall

    A very good summation of the situation as it pertained during the boom years in Ireland. Very interestingly, Fintan O'Toole talks about the failure of state led technology projects in Ireland, which is host to so many multi-nationals. O' Toole's talk resonated with some things I wanted to use text to articulate in the 'T-rex' blog entry I wrote. The point is though, even such expert commentators such as George Lee or Fintan O'Toole cannot fully understand Ireland's problems, because much of the research into the 20th century of enterprise in Ireland, hasn't been done.

    http://vimeo.com/7147574

  5. Brian O' Hanlon

    BTW, Stephen I finished listening to the podcast Michael Spence on Growth. He talks about the Washington consensus, which had many of the ingredients right - but the trick is to execute in such as order, as to make adjustments politically feasable to do. What Fintan O'Toole describes in his 20 minute talk about Ireland and the Celtic Tiger boom, is not very far away from what Michael Spence was talking about.

    http://www.econtalk.org/archives/2010/01/spence_on_growt.html

  6. Brian O' Hanlon

    I responded to some issues Michael Hennigan and others raised at IE this evening.

    http://www.irisheconomy.ie/index.php/2010/04/04/lenihan-says-nama-will-stop-houses-prices-falling/#comment-43998

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