The wealth distribution in the United States has always been incredibly skewed toward the wealthiest, with the share going to the top 1 percent moving up from What key factors explain this continuing concentration of wealth?
Two papers released today as part of the Equitable Growth Working Paper series give us some guidance on the forces that have led to such an unequal wealth distribution in the United States. The first of the two papers, by Jess Benhabib and Alberto Bisin of New York University, gives an overview of previous research looking at the causes of wealth inequality.
These mathematical and macroeconomic models have, in the past, fallen short of recreating the distributions of wealth we actually see in the world. The problem is that they fail to identify the high concentration of wealth among the very wealthy. The second is related to capital income risk, or differences in the rate of return on investments at different levels of wealth. We will be regularly updating this analysis here. In , the three men at the top of that list — Amazon founder Jeff Bezos, Microsoft founder Bill Gates, and investor Warren Buffett — held combined fortunes worth more than the total wealth of the poorest half of Americans.
You can find more background on these numbers in our report, Billionaire Bonanza Since , just seven men have held this spot: shipping magnate Daniel Ludwig , oil executive Gordon Getty , Walmart founder Sam Walton , media company owner John Kluge , Microsoft founder Bill Gates , except , investor Warren Buffett , and Amazon founder Jeff Bezos In , the tax share of the top.
That share peaked in the late s, right before the Great Depression, then fell by more than half over the next three decades. It will do so again, unless we fix it. Whether capitalist or communist, democratic, autocratic, or plutocratic, it will exist. Yet many of the extremes we see today are avoidable. They come as a result of an unlevel playing field, the direct consequence of certain government policies. Here, in my eyes, are the top 10 causes of wealth inequality, in reverse order.
The tax code George Osborne and Gordon Brown are the chief architects of a tax code that is now the longest in the world — in excess of 10m words and 21, pages. The few have the resources to find the loopholes, of which there are many, and exploit them.
Do we really need Bank bailouts If I manage my business imprudently, I go bust. Why should banking get special favour? It goes straight into the financial sector, pushing up the prices of financial assets.
Great for those who own said assets, or work in related sectors, but not for most people. Who actually voted for quantitative easing and bailouts anyway?
No one. Likewise, others will prefer to interact with you if you have a reputation for fairness. Western society is more unequal than it has been for decades. This trait benefits everyone. Indeed, those who benefit most are sometimes those who receive the least from it. As a concrete example, imagine that we are hunter-gatherers living 20, years ago, and that fishing trips are best done by two people.
You are a skilled fisher. Each day, you need to decide whether to go fishing with another skilled fisher with whom you are likely to jointly catch 16 fish, or me, an unskilled fisher with whom you are likely to catch only If everyone demands equal divisions, then you will always choose the other skilled fisher instead of me.
But rather than being left to starve, I might argue for the virtues of fairness, and suggest that I will only take two fish. So you can go out with either me or the third person and still end up with eight fish. Despite our strong evolution-based motivation for fairness, people often act quite unfairly. One of them is greed. Thus, if we want to achieve greater fairness, it is important to know how and why the motivation for it increases or decreases.
Many studies have shown that it depends on context. Most notably, the motivation is quite high when people know they are being evaluated by others who can choose whether to interact with them in the future. Likewise, being in an environment in which it is common to interact with strangers — and in which any given one of them is a potential partner — leads to higher levels of fair behaviour.
Although the actual content was identical for everyone, individuals in groups told they were playing the community game made more cooperative decisions and expected the other players to do the same. Such research on how people think about fairness has obvious ramifications for contentious social issues such as executive pay, taxation and welfare.
Fair inequality appears to be a desirable, even natural, state of affairs. What level of it should we seek? As a cognitive scientist, my role is not to make such judgements, only to point out facts that might be useful for people who do. But I am also a person who wants to see the world become a better place. In advancing the fight against unfair inequality, I find the ancient military treatise The Art of War useful.
I think this advice is essential: knowing how we all think about fairness and equality, and where these judgements come from, is vital for properly combating unfair inequality, and for recruiting others into the fight. Consider, for example, the fact that people in economically developed nations are often appalled by the wages and working conditions in developing countries, leading to calls for boycotts on certain products.
It may be that this is a misapplication of our sense of fairness: considering what is a fair wage in an area requires knowing things such as local costs and the alternative jobs available.
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