Twattery in The Guardian again!
We\’re told that it\’s a simple mathematical law, a power distribution, which shows why wealth is so unequally distributed. Tosser of a physics graduate hasn\’t bothered to work out why though. My comment there:
Oh Dear Lord. Can we have Ben back please?
\”The economist Edward N Wolff, of New York University, has pointed out that, as of 2007, the top 1% of households in America owned 34.6% of all privately held wealth, and the next 19% had 50.5% of the wealth. This means that just 20% of the people owned 85% of the wealth, leaving only 15% for the bottom 80% of the people. No one who is interested in an equitable society can fail to be irked by this unfairness.\”
So, let us add the little bit that economists know and physics graduates obviously don\’t.
It is possible to observe that people age, yes? That as they age they accumulate assets? Invest in a pension, pay off the mortgage, stick cash in an ISA, buy a painting perhaps, inherit granny\’s Chinese vase that turns out to be worth a fortune on Antiques Roadshow?
Just in general: we expect households headed by a 25 year old to have no wealth at all in fact. Almost certainly in fact negative wealth. Student loans, maybe a mortgage with no or little equity, only just started working perhaps. No assets, possibly negative assets.
We also expect a household headed by a 60 or 65 year old to have assets. That lifetime\’s accumulation of possessions, whatever investments, savings have been made, household equity, pension, whatever.
This is sometimes known as the \”lifetime savings hypothesis\”. Modigliani got his Nobel in part for explaining it.
So, now let\’s take all the housholds in the country and split them into quinitles, 20% of households to each. But instead of doing it by wealth we\’ll do it by age group.
Head of household is 20-30, 30-40, 40-50, 50-60, 60-70. We would expect there to be an unequal distribution of wealth here. In fact, we would insist that there\’s going to be an unequal distribution of wealth here. Some chunk of the wealth is going to be owned by those older households and some chunk isn\’t: that bottom quintile we\’d expect (absent inheritances of course) to own nothing, even be in negative territory. The next quintile possibly still negative but possibly marginally positive. And so on. We actually expect there to be inequality of wealth precisely because people a) age and b) save.
Now, does this explain all of the inequality of wealth that we currently see? I\’m sure it doesn\’t. I\’m sure there is also inequality within those age groups. But saying \”see, wealth inequality, awful!\” is ignorant.
What we want to know is how much of it is because we are human beings who, because we age and retire, save, and how much of it is due to the structure of the economy.
As I say, can we have Ben back from his book leave please?