The model looks at molecular interactions in an atmosphere flowing over a surface, just as the airflow over a wing instead of modeling molecules as individual agents whose level of activity is governed by heat, as in Yakovenko et. al. and other econophysics models. Introduces an actual ‘economic’ structure into gas models which integrates the behavior of agents and thus avoids the artifical constraints of ‘efficient market’ and ‘rational agent’ underpinning much of economic modeling. Just as in an economy, circulation is required to generate growth/lift which changes with flow conditions. Flow generates forces on the surface that have direct economic relevance. Most importantly, it shows income distribution and places the economy within a defined performance envelope. For any given balance of forces, there is only one specific stable velocity, and when disturbed, the model will tend to return to this velocity, as long as the model is within its performance envelope. There is no general economic equilibrium per se, but rather a trimmed velocity to which the model, when disturbed, may return after a number of cycles, dependent on its stability.

1. The Cambiant
Economic Model
A dynamic model of economic performance
and income distribution
“The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves
too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is
flat again”. John Maynard Keynes
"Many economic theories don't even come close to producing the wealth distribution we see, and if you can't
produce that, you're dead in the water." J. Doyne Farmer
Cambiant: from the latin Cambiare....to exchange, to trade and camber as in airfoil properties

2. • Click here for visual demonstration

3. The Cambiant model:
Going with the flow
• The model looks at molecular interactions in an atmosphere flowing over a
surface, just as the airflow over a wing instead of modeling molecules as
individual agents whose level of activity is governed by heat, as in Yakovenko
et. al. and other econophysics models.
• Introduces an actual ‘economic’ structure into gas models which integrates
the behavior of agents and thus avoids the artifical constraints of ‘efficient
market’ and ‘rational agent’ underpinning much of economic modeling.
• Just as in an economy, circulation is required to generate growth/lift which
changes with flow conditions. Flow generates forces on the surface that
have direct economic relevance. Most importantly, it shows income
distribution and places the economy within a defined performance envelope.
• For any given balance of forces, there is only one specific stable velocity, and
when disturbed, the model will tend to return to this velocity, as long as the
model is within its performance envelope. There is no general economic
equilibrium per se, but rather a trimmed velocity to which the model, when
disturbed, may return after a number of cycles, dependent on its stability.

4. Precursors to the Cambiant
Model:
Econophysics: From Pareto to Bouchard
• Pareto: Power law Pareto Probability Distribution
wealth distributions.
The ‘80/20’ rule
• Mandelbrot: Fractal
geometry and Exponent
market stability
• Yakovenko:
Combined Pareto
and Boltzmann
distributions
Distribution
• Bouchard: Wealth
condensation

5. Creating the Cambiant
structure of the economy
• Surface created to
approximate pressure
distribution using
conformal mapping
aerodynamics model
to match income
distribution derived
from CBO data and
matched to NACA
airfoil surface.
• Flow relative to
surface modified to
produce 2007 data by
changing angle of
surface to flow. (alpha)
• Results then compared
with data series from
1979-2007 as shown in
next slide.

6. Comparing Cambiant model
with CBO Data 1979-2007
The CBO plot (below) is produced from their time series of
Quintile data plus top 10,5 and 1% of earnings 1979-2007.
The peaks and contours plotted from actual CBO data match
very closely to the Cambiant model output. (Cambiant model
produces 32 data points per year vs. 8 points for CBO model)
(Note that there is some distortion in the right hand axis of
the graphs, due to formatting of the CBO data and the graph
only reflects the population that reports taxable income...see
previous slide)
!
The Cambiant model (above) shows the income
distributions from 1979-2007 produced by the model.
The plot was produced by varying the alpha of the
Cambiant model relative to the flow. No other variables
were changed. (See previous slide)
The vertical scale is income and
the right hand scale shows the income of the various
percentages of the population.

7. Equilibrium: Balancing the
Forces
• The Cambiant model correlates the
forces that define equilibrium or steady
state in flight with the analogous
economic forces.
• Alpha represents the anticipated level
of economic performance (public/
private plus government policy).
• Growth and Pre values vary with single
control input, the changing alpha value.
• Model shows optimum alpha values and
the effects of income distribution on
performance as pressure/income
distributions vary with alpha value.
• Force coefficients for Lift and Drag
drive dynamic simulation of economic
performance. High Lift/Drag ratios
indicate more efficient economic
performance at optimum levels.

8. Visualizing the flow
• Cambiant model replicates flow over
surface representing structure of
economy.
• Wind tunnel model shows actual
state of flow as alpha varies, from
low growth/lift coefficient to stall.
• Conditions in the boundary layer
produce pressure/income
distributions. The video shows hows
how various segments of the
economy are impacted: wealthiest at
leading edge, poorest at trailing edge.
• Flow exists in multiple states
depending on alpha, from low lift to
separation and stall condition,where
those in the separated region have
no income.
• Model places limits on economic
performance which are defined by
nature of flow over surface, which
also defines income distribution.

9. Placeholder for
Cambridge wind tunnel
movie

10. Force Coefficients for U.S.
• Force coefficients and alpha
produced by model analysis
of Congressional Budget
Office (CBO) data on income
distribution 1979-2007.
• Alpha drives coefficients of
performance, the growth and
requirements for production
coefficients. Sufficient
production of value vs. cost of
production is required to
maintain a given alpha.
• Lots of instability in
relationship of alpha/growth
coefficient/cost of production
coefficient.
• Top earnings largely driven by
financial sector.
• Relationship of growth
coefficient to cost of
production coefficient shows
relative efficiency of economy.

11. Force Coefficients for
Sweden
• Force coefficients from
Cambiant model using
Dominican income
distribution database.
• Mainly a trading nation with
emphasis on engineering and
technology.
• Very different from U.S. but
approaching US Alpha levels
from 1979.
• No instability on Alpha vs.
growth/COP coefficients.
• Sweden’s exports account
for large percentage of GDP.

12. Comparative Income
Distribution
Sweden-U.S. 1979-2007
• Graphs reflect force
coefficients from previous
slides.
• Far more middle class wage
earners in Sweden.
• Swedish economy driven by
export, of which engineering
and manufacturing represent
large percentage.
• U.S. top 20% incomes mostly
driven by financial sector/
stock markets.

13. Cambiant model
performance envelope
The limits of economic performance
• Forces give an envelope
of performance for
maximum and minimum
velocity in equilibrium
conditions.
• Changing alpha moves
along Pre curve which
defines levels of
performance vs. Pav.
• Model imposes limits on
performance, modeled by
nature of flow.
• As with an airfoil,
insufficient velocity will
cause economy to stall.

14. Stability and Debt
• Debt burden is weight on the
economy.
• Shifting burden rearward
causes instability.
• Financial instability is caused
when financial instruments
value is based on people and
institutions with less
discretionary income and
marginal ability to service debt.
• Examples are securitization of
home mortgages, student
loans, commercial paper, etc.

15. Model output with debt/
stability changes.
Using the model to isolate one variable: stability
• Model run starts with
stable conditions and shifts
debt to less stable
condition over time,
starting post ’87 crash.
• Sharp impulse applied at
start of crash of ’87
and .com crash. to trigger
instability.
• Production of value is held
constant.
• No other inputs, so model
shows only impact of
destabilizing financial
instruments.

16. Model simulation of Crash of
2008
• Model run starts at 2008
crash.
• TARP bailout preserves cash
flow in financial sector.
• At its peak, stimulus arrests
rate of decline of asset value
with increased (Pav) to a
nearly stable condition.
• Reduction of stimulus leads
to further instability and
decline. (Pav held constant)
• Total asset value continues to
decline at steepening rate.
Pav is insufficient to maintain
stable conditions and any
shock results in substantial
instability and loss.

17. What the Cambiant model
shows
In general:
• No economy can grow without sufficient capability to create value.
• Income distribution is a very important indicator of economic performance and
efficiency. A large middle class with discretionary income is vital to a consumer
economy and excessive income inequality degrades economic performance.
• Optimum wealth distribution depends on the structure of the economy as shown
by the Cambiant surface model of the structure. It is important to note that some
inequality is required for optimum economic performance.
• No segment of the economy can extract more value than it creates without
causing excessive drag on the economy.
• Evaluating economic performance without taking into account depletion of
resources, externalities and public well-being can lead to major errors in policy

18. What the model tells us
about economic stimulus
• Recent financial bailouts stimulated the leading edge of the economy,
maintaining alpha at highly inefficient ranges. Those at the leading edge
are extracting too much momentum from the flow of transactions
causing separation and thus unemployment at the trailing edge of the
economy.
• Without stimulating the necessary demand to utilize the available
potential production of value, stimulus results disappear with removal of
stimulus.
• Without creation of demand, application of financial stimulus to maintain
asset values will lead to liquidity traps and stagflation (behind the power
curve) situations which can only be escaped by reduction of total asset
value or incurring debt to fund productive investment.
• Market turbulence can lead to economic stall when the economy is
operated at excessive values of alpha.

19. The Cambiant model and
policy.
• There is an optimum point of wealth distribution, a ‘Bentham point’, that
produces the greatest good for the greatest number for any given structure of
an economy. It is clearly differentiated from the optimum capital market point,
but both points are within prudent economic limits. Excess beyond this range
in either direction can substantially reduce economic efficiency.
• A given economic structure reaches a maximum ceiling in asset value, much as
an aircraft has a maximum ceiling, which ceiling can only be raised by increasing
the efficiency of the economy, or by improving its structure. Policy that
maintains existing structures will inhibit changes to more efficient
configurations and technologies.
• Economic efficiency can be improved by providing greater access to markets for
greater numbers of participants. Excessive inequality in wealth distribution can
be corrected by taxation, which if invested mainly in value-producing programs
in the national interest, will allow the economy to achieve higher ‘altitude’ and
asset value.

20. Next Steps
• Develop software
to allow scripted
runs with complex 10
Earnings X $100,000
inputs. 9
•
8
Refine Cambiant
surface modeling to 7
more closely model 6
employment, 2002 Model Output
Earnings x $100,000
5
underemployment
and unemployment.
4
2002 CBO Data
3
• Refine ‘aircraft’ 2
model of the 1
1979 CBO Data
1979 Model Output
economy to more 0
closely tie Middle Quintile Top Quintile
simulation input -1
and output to -2 Model output vs. CBO after tax income
actual economic
studies.