Why The Rich Gets Richer
The rich get richer. It’s a fact of life.
WEALTH begets wealth. It’s not just a myth: a new study finds that the rich really do get richer, and they stay rich.
Few topics are as polarizing as wealth. Everyone has an idea of how it should be spread and what’s not right in society, how some people have too much money and some have too little.
But regardless of where you stand on the debate, one thing seems clear…
Or is it just one of those things people say?
Despite rising income, the wealth gap is getting wider, and the pandemic is not helping.
In a new study, economists from the IMF and other institutions analyzed 12 years of tax records from Norway, offering an unprecedented look at how wealth evolves in time.
The data shows that the rich really do get richer, and it’s in large part because they get higher returns on their investments.
For example, if someone in the poorest 25% of the spectrum has invested $1 in 2004, he would have, on average, $1.5 by 2015. That’s a return of 50%, and it’s not bad for 11 years. But someone in the top 0.1% would have $2.4 — a return of 140%.
There is another important finding: people at the top of the wealth scale don’t really drop from this position.
In other words, it’s difficult to reach the top of the wealth scale if you’re not there in the first place.
Despite the wealth tax in Norway, the rich seem to get richer. This is surprisingly in line with what economists claimed: that a wealth tax wouldn’t stop the rich from getting richer, but they would do so at a slower rate, or in a way that would help the rest of the population instead of producing economic inequality.
So why does this difference in return emerge? Conventional wisdom dictates that richer people can afford risks and they make more money from this, but this doesn’t really seem to be the case.
Instead, researchers found that richer people may be exposed to unique investment opportunities, or afford wealth managers.
Financial education, information, and relationships are also important — and that’s exactly what high status offers you.
The wealthy status appears to be persistent in time, even across generations, researchers note.
However, while the children of rich people stay rich, they don’t typically have as high a return on their money as their parents did.
It turns out that wealth is inheritable, but skill and talent are less so.
There are, of course, important caveats to this study, but they seem to show that whenever wealth is created, the vast majority of it flows into the pockets of the 1%.