ANALYSIS

Economists have offered various explanations for the frustrating slowness of global growth, from excessive debt to a shifting balance of power bringing an end to an American century. A new analysis suggests there's one that deserves greater attention: the chilling effect of inequality.

Think of an economy as a large network of individuals and firms who make and use things, interact and exchange with one another. Any party can, in principle, transact with any other, buying and selling, the only constraint being the budget of the buyer. Economists have studied network models of this sort — called random exchange economies — to explore how normal trading activity might (or might not) make an economy approach equilibrium.

Now some European physicists have used such a model to examine a different question: How does a significant change in inequality affect the overall level of exchange? Their study makes use of some fairly abstruse mathematics coming from physics, developed precisely for messy network problems of this kind. What they find is troubling, although not all that surprising — rising inequality tends to undermine exchange.