||This article possibly contains original research. (November 2013)|
Wealth concentration is a process by which newly created wealth, under some conditions, can become concentrated in the possession of wealthy individuals or entities. Those who hold wealth have the means to invest in newly created sources and structures of wealth, or to otherwise leverage the accumulation of wealth, and are thus the beneficiaries of even greater wealth.
The first necessary condition for the phenomenon of wealth concentration to occur is an unequal initial distribution of wealth. The distribution of wealth throughout the population is often closely approximated by a Pareto distribution, with tails which decay as a power-law in wealth. (See also: Distribution of wealth and Economic inequality). According to PolitiFact and others, the top 400 Americans "have more wealth than half of all Americans combined."
The second condition is that a small initial inequality must, over time, widen into a larger inequality. This is an example of positive feedback in an economic system. A team from Jagiellonian University produced statistical model economies showing that wealth condensation can occur whether or not total wealth is growing (if it is not, this implies that the poor could become poorer).
Correlation between being rich and earning more
- A correlation between being rich and being given high paid employment (oligarchy).
- A marginal propensity to consume low enough that high incomes are correlated with people who have already made themselves rich (meritocracy).
- The ability of the rich to influence government disproportionately to their favor thereby increasing their wealth (plutocracy).
In the first case, being wealthy gives one the opportunity to earn more through high paid employment (e.g., by going to elite schools). In the second case, having high paid employment gives one the opportunity to become rich (by saving your money). In the case of plutocracy, the wealthy exert power over the legislative process, which enables them to increase the wealth disparity.
Because they are non-exclusive, it is possible for all three explanations to work together for a compounding effect, increasing wealth concentration even further.
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- Pepitone, Julianne (September 22, 2010). "Forbes 400: The super-rich get richer". CNN. Retrieved August 11, 2013.
- Johnson, Dave (February 14, 2011). "9 Pictures That Expose This Country's Obscene Division of Wealth". Alternet. Retrieved August 11, 2013.
- Burdaa, Z. et al. (January 22, 2001). "Wealth Condensation in Pareto Macro-Economies". arXiv. arXiv:[cond-mat.stat-mech cond-mat/0101068 [cond-mat.stat-mech]]. Bibcode:2002PhRvE..65b6102B. doi:10.1103/PhysRevE.65.026102. Retrieved September 11, 2013.
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(Zdzislaw Burda and others at Jagiellonian University), 2002 "Wealth condensation in Pareto macroeconomies" model appears in Physical Review E, vol 65
- Winner-takes-all markets defined in the Economist magazine.
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