In a bit of a random walk, Larry Samuelson and I wrote a macro paper on the impact of redistribution on economic growth. It has now been (cond.) accepted by AER:Insights with the feedback "This is weird but interesting." I am glad our profession gives a chance to heresies. Let me share it with you. - ThreadSky

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jaksteiner.bsky.social • 83 days ago

In a bit of a random walk, Larry Samuelson and I wrote a macro paper on the impact of redistribution on economic growth. It has now been (cond.) accepted by AER:Insights with the feedback "This is weird but interesting." I am glad our profession gives a chance to heresies. Let me share it with you.

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jaksteiner.bsky.social•83 days ago

We view individuals as financial assets with random returns. Choosing and maintaining wealth distribution at the macro level is thus akin to managing a private asset portfolio. In both cases, hedging is essential to sustain an optimal growth rate, which involves allocating wealth to the underdogs.

jaksteiner.bsky.social•83 days ago

Maintaining the optimal hedge requires redistribution (portfolio rebalancing) from those who got lucky to those who didn’t. According to Kelly’s (1956) optimality condition, however, this redistribution isn’t systematic: once luck is averaged out, it should cancel out.

jaksteiner.bsky.social•83 days ago

For our application though, Kelly's optimal allocation may not be feasible due to inequality constraints, and thus we solve a constrained version of Kelly's betting problem. For this, we develop a new solution method.

jaksteiner.bsky.social•83 days ago

We envision redistribution policy as a stochastic rule that moves dollars around people. As it turns out, Large deviations theory has a bite. Some dollars happen to be lucky in the Forest Gump's sense: they often end up in the hands of people at those periods when these are productive.

jaksteiner.bsky.social•83 days ago

Almost all wealth is then generated alongside an optimal large deviation that enjoys a high enough excess growth rate but isn't too rare. We then get an extension of Kelly's insight: optimal policy redistributes incidental luck but minimizes systematic redistribution as much as constraints allow.

jaksteiner.bsky.social•83 days ago

The paper is here: https://home.cerge-ei.cz/steiner/Growth_and_redistribution.pdf

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