**Victor Yakovenko, University of Maryland**

January 26, 2010

This talk will review the progress in applications of statistical physics to probability distributions of money, income, and wealth in a society [1]. Using analogy between the probability distributions of energy in physics and money in economics, I argued that the distribution of money should follow the exponential Boltzmann-Gibbs law for certain classes of models with interacting economic agents [2]. Analysis of the empirical data shows that income distribution in the USA has a well-defined two-class structure. The majority of the population (about 97%) belongs to the lower class characterized by the exponential ("thermal") distribution. The upper class (about 3% of the population) has the Pareto power-law ("superthermal") distribution, whose share of the total income expands and contracts dramatically following the bubbles and busts in financial markets. When debt is included in the statistical models, it destabilizes the Boltzmann-Gibbs distribution in the absence of an intrinsic mechanism for limiting debt. As a result, the nominal wealth growth of the upper class largely comes from the debt growth of the lower class, until the economy collapses under the burden of excessive debt. I will also briefly discuss the distribution of energy consumption per capita around the world and show that it also follows the exponential Boltzmann-Gibbs law [3]. The data show how globalization of the world economy affects the inequality of energy consumption. This talk is a follow-up to the econophysics session "What Went Wrong with the Global Economy?" at the 2010 Meeting of AAAS [4]. More references can be found at the Web site [5].

References

[1] V. M. Yakovenko and J. B. Rosser, Jr., "Colloquium: Statistical Mechanics of Money, Wealth, and Income", Reviews of Modern Physics 81 (2009) 1703.

[2] A. Dragulescu and V. M. Yakovenko, "Statistical mechanics of money", The European Physical Journal B 17 (2000) 723.

[3] A. Banerjee and V. M. Yakovenko, "Universal patterns of inequality", submitted to the New Journal of Physics, arXiv:0912.4898.

[4] 2010 Meeting of AAAS, http://aaas.confex.com/aaas/2010/webprogram/Session1560.html

[5] Econophysics Web page of Victor Yakovenko: http://www2.physics.umd.edu/~yakovenk/econophysics/

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Colloquia are held Tuesdays in Room 1410 at 4:00 pm (preceded by light refreshments at 3:30). If you have additional questions, please call 301-405-5946.