Editing Distribution of wealth (section)

== Wealth concentration ==
'''Wealth concentration''' is a process by which created [[wealth]], under some conditions, can become concentrated by individuals or entities. Those who hold wealth have the means to [[investment (macroeconomics)|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.

===Economic conditions===
[[File:Global-share-of-wealth-by-wealth-group-768x409.png|thumb|250px|Global share of wealth by wealth group]]
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 400 wealthiest Americans had "more wealth than half of all Americans combined."<ref name="PF-20110311"/><ref name="HP-20110306"/><ref name="MM-20110307"/><ref name="CNN-20100922"/> [[Inherited wealth]] may help explain why many Americans who have become rich may have had a "substantial head start".<ref name="Salon-20140324"/><ref name="ECO-20140318"/> In September 2012, according to the [[Institute for Policy Studies]], "over 60 percent" of the [[Forbes 400|''Forbes'' 400 Richest Americans]] "grew up in substantial privilege".<ref name="OW-20120924"/>

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).<ref name="arXiv-20010122">{{cite journal |author=Burdaa, Z.|title=Wealth Condensation in Pareto Macro-Economies |url=http://www.mathnet.or.kr/mathnet/paper_file/heriot/johns/j_10.pdf |date=January 22, 2001 |journal= Physical Review E|doi=10.1103/PhysRevE.65.026102 |arxiv=cond-mat/0101068  |access-date=September 11, 2013 |bibcode = 2002PhRvE..65b6102B |display-authors=etal |volume=65 |issue=2|page=026102 |pmid=11863582 |s2cid=8822002 }}{{Dead link|date=February 2025}}<!--Original link in |url is dead but arXiv and doi still work--></ref>

Joseph E. Fargione, Clarence Lehman and Stephen Polasky demonstrated in 2011 that chance alone, combined with the deterministic effects of compounding returns, can lead to unlimited concentration of wealth, such that the percentage of all wealth owned by a few entrepreneurs eventually approaches 100%.<ref>Joseph E. Fargione et al.: [https://doi.org/10.1371/journal.pone.0020728 ''Entrepreneurs, Chance, and the Deterministic Concentration of Wealth.'']</ref><ref>[https://share.cocalc.com/share/91277c1f83bd1bd143ec1e2faf67b3057e26602c/fargione.ipynb?viewer=share Simulation of wealth concentration according to Fargione, Lehman and Polasky]</ref>

====Correlation between being rich and earning more====
Given an initial condition in which wealth is unevenly distributed (i.e., a "[[wealth gap]]"<ref name="AP-20140127">{{cite news |last1=Rugaber |first1=Christopher S. |last2=Boak |first2=Josh |title=Wealth gap: A guide to what it is, why it matters |url=http://apnews.excite.com/article/20140127/DABJ40P00.html |date=January 27, 2014 |work=[[AP News]] |access-date=January 27, 2014 }}</ref>), several non-exclusive [[economic]] mechanisms for wealth condensation have been proposed:
* 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]]).<ref>{{cite book|title=The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos|url=https://archive.org/details/newgoldenagecomi0000batr|url-access=registration|first=Ravi|last=Batra|publisher=Palgrave Macmillan |date=2007 |isbn=978-1-4039-7579-9|access-date=October 21, 2011}}</ref>

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.<ref>{{cite web|url=http://channer.tv/monday.htm,%2007-25-11.htm|title=TV interview with Dr. Ravi Batra|first=Harold Hudson|last=Channer|date=July 25, 2011|access-date=October 21, 2011}}</ref> An example of this is the high cost of political campaigning in some countries, in particular [[campaign finance in the United States|in the US]] (more generally, see also [[Political finance#Plutocratic finance|plutocratic finance]]).

Because these mechanisms are non-exclusive, it is possible for all three explanations to work together for a compounding effect, increasing wealth concentration even further. Obstacles to restoring wage growth might have more to do with the broader dysfunction of a dollar dominated political system particular to the US than with the role of the extremely wealthy.<ref name=":0">{{Cite book|title=Learning by Doing: The Real Connection between Innovation, Wages, and Wealth|last=Bessen|first=James|publisher=Yale University Press|year=2015|isbn=978-0300195668|pages=226–27|quote=The obstacles to restoring wage growth might have more to do with the broader dysfunction of our dollar- dominated political system than with the particular role of the extremely wealthy.}}</ref>

Counterbalances to wealth concentration include certain forms of taxation, in particular [[wealth tax]], [[inheritance tax]] and [[progressive tax]]ation of income. However, concentrated wealth does not necessarily inhibit wage growth for ordinary workers with low wages.<ref>{{Cite book|title=Learning by Doing: The Real Connection between Innovation, Wages, and Wealth|last=Bessen|first=James|publisher=Yale University Press|year=2015|isbn=978-0300195668|pages=3|quote=However, concentrated wealth does not necessarily inhibit wage growth.}}</ref>

The investor, [[billionaire]], and [[philanthropist]] [[Warren Buffett]], one of the wealthiest people in the world,<ref>{{cite web |title=The World's Billionaires |url=https://www.forbes.com/billionaires/list/ |url-status=live |archive-url=https://web.archive.org/web/20130403013841/http://www.forbes.com/billionaires/list/ |archive-date=3 April 2013 |access-date=1 May 2018 |website=forbes.com}}</ref> voiced in 2005 and once more in 2006 his view that his class, the "rich class", is waging class warfare on the rest of society. In 2005 Buffet said to CNN: "It's class warfare, my class is winning, but they shouldn't be."<ref>[http://edition.cnn.com/2005/US/05/10/buffett/index.html Buffett: 'There are lots of loose nukes around the world'] {{webarchive|url=https://web.archive.org/web/20160430104340/http://edition.cnn.com/2005/US/05/10/buffett/index.html|date=30 April 2016}} CNN.com</ref> In a November 2006 interview in ''[[The New York Times]]'', Buffett stated that "[t]here’s class warfare all right, but it’s my class, the rich class, that’s making war, and we’re winning."<ref name="Buffett_warfare">{{cite news |last=Buffett |first=Warren |date=26 November 2006 |title=In Class Warfare, Guess Which Class is Winning |url=https://www.nytimes.com/2006/11/26/business/yourmoney/26every.html |url-status=live |archive-url=https://web.archive.org/web/20170103165340/http://www.nytimes.com/2006/11/26/business/yourmoney/26every.html |archive-date=3 January 2017 |newspaper=The New York Times}}</ref>