Saturday, April 23, 2011

Why Wealth Flows Up

I've been trying to figure out why the wealthy get wealthier unless there's some strong societal pressure to keep things even kind of equal. Turns out I'm not the only one. Here's a study, complete with calculus, explaining all about it.

http://www.growthcommission.org/storage/cgdev/documents/EquityandGrowth/Bowles.pdf

Basically, the answer is inheritance. And capital. If you have inherited money, then you can use that money to make more money--you have a head start. Inheriting social position is at least as useful, in that you have a built-in set of people to help you along.

Here's an article discussing wealth inheritance specifically in the US. http://www.economicmobility.org/assets/pdfs/EMP_LitReview_Wealth.pdf It comes to the conclusion that between 45% and 80% of all US wealth is inherited. Nice, if you choose your parents carefully enough.

And, another paper: http://www.nber.org/~denardim/research/denardi.pdf

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