The Poor Get Richer And The Poor Get Poorer?

There is an interesting phenomenon that could be found in almost every aspect of our society. The good get better and the bad get worse. It seems that people will attain more and more in their way once they choose their way. For an analogy, if a person gets on a train in certain direction, he will get farther and farther on his way and he can hardly change his direction or position.

The Pareto principle, also known as the eighty-twenty rule, states that in many of the phenomena 80% of the results come from 20% of causes. For instance, 80% of a company’s profit comes from its 20% of programs, and 80% of crimes are committed by 20% of criminals.

In economics, there also exists this imbalance phenomenon. The rich get richer and the poor get poorer. The top 20% of population owns the 80% of all wealth. The distribution of wealth is unequal.

There are many theories that could help to explain this phenomenon, philosophically, sociologically, or economically.

In Thomas Piketty’s book, Capital in the Twenty-First Century, the author thinks that the return on capital is higher than the rate of economic growth, except the World War II period (Piketty). Accumulated and inherited wealth takes larger part in overall economy. Over time, the rich would get richer and the poor would get poorer. This is a part of the results of capitalism. This viewpoint is showed in the following picture (see fig. 1).

Fig. 1. After tax rate of return vs. growth rate at the world level, from Thomas Piketty, Capital in the Twenty-First Century. Belknap Press. 2014. Print.

However, the American Enterprise Institute (AEI) refutes Piketty’s viewpoint. AEI thinks that though Piketty did his calculation with the post-tax income, he did not ca...

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...post-tax return of wealth of the different groups of rich people from 1990 to 2012 (see fig. 10). This figure shows that all of the rich groups tend to have the same return of wealth. The presupposition of Zipf’s law applies. By this time, the wealth distribution of the whole society would go back to power law distribution. The proportion of wealth held by the richest population goes up rapidly. Conversely, the proportion of wealth held by the rest of the population goes down gradually. The poor get poorer accordingly.

The consequences of wealth inequality are severe. It damages the harmony of the whole society. It could cause poorer health, lower educational attainment, high crime rates, and lower trust of government, According an article on the Huffington Post (Friedman). Government needs to find solutions to solve the inequality problem before it is too late.