In most developed nations there is a vast income, wealth inequality. The 99%
issue comes up. Essential a small fraction say 1% of the humans have a very
large (may be 60% plus?) portion of the wealth.
What is the reason for this unequal distribution of wealth and any way to
reverse this path?
I postulate the fundamental reason is that it takes money to make money. A rich
person can become richer more easily than a poor person making it into the
rich. Also it's easier for a poor to become even poorer.
Mathematically we have a positive feed-back loop (imagine a forest-fire or
avalanche, the larger it gets, the more larger it becomes.. until the whole
system explodes or runs out of fuel). Essentially an exponential function is
at work (d/dx e^x = e^x).
The positive feedback loop is established and enhanced due practices like:
- Rich can buy policies that favor them (lobbying in congress)
e.g tax policies. Say dividends/cap-gains are taxed much lower.
These are tools to help rich to amass even more as these income
don't matter to poor.
- A rich kid has tools that will help him/her succeed in education
[e.g. access to technology, a far-away educational trip]
- Sales tax is uniform [a guy buying a razor pays the same sales tax as one
buying a ferari]
- cost of necessary items are same [a millionaire filling up his merc pays
the same cost of gasoline as someone filling his ford focus]
Let's modal a group of N entities having various net-worth.
N entities can be seen as bank-accounts of individuals or corporates.
So f(n_k) is the net-worth.
We can imagine these to be N circles in a place where each circle's diameter
is proportional to the net-worth.
What happens over time is bigger circles get even bigger at the expense of
other circles. Smaller circles keep shrinking (until they go to zero ..or even
negative (which is debt)).
Society keeps favoring polices which will enable faster movement of the above.
This will keep happening until we are left with just a handful of very large
circles and millions of points (circles with zero diameter).
Another analogy is an ocean where small fish eat even smaller fish; and large
sharks swallow the small fish.
In its limit, there will be just one entity (likely a non-human, e.g.
corporate) a very big circle and all others are just points. That is every one
is below poverty-line and there is one ultra rich entity.
How to reverse the trend:
- The positive feedback loop needs to be addressed. If it's hard to break
down, measures to weaken it must be used.
- Humans are instinctively sharing. So making information on one's wealth,
income public, will resist a human to accumulate more and encourage him/her
to share. For public companies we can already see this info (like income
statement, balance sheet) - but we can't see it for private individuals.
- Restrain lobbying, tax policies which favor rich
All these measures can only slow down the feedback; but the feedback will
continue to work. Unless in a different society where money is shunned upon,
this feedback loop will always lead to more and more inequality. [BTW if a
society shuns money -- some hypothetical monk society, again a feedback loop
will come into place making very few people more poor than others]
What can I do?
If you can try to reach the other side so that the feedback loop works for
you; e.g. a person investing in stock market may benefit more than say, he
tries to start his own small business.
If you can affect government policy, increase transparency, allow people and
govt to expose their income/net-worth/expenditure -- for humans it will work
on their moral compass to share more of their wealth.
So the bottom line is as money is power (another article on this), it gives
the holder of money, power to direct decisions/paths in future. This power is
normally used to accumulate more money. Thus bigger money becomes even bigger.
Hence the vast wealth inequality is a natural consequence of this ability of
money to make more money.
Tags: "Reasons for wealth inequality", "What causes wealth inequality?"
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