Distribution of wealth

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World Distribution of Wealth and Population in the Year 2000
World Distribution of Wealth and Population in the Year 2000

Distribution of wealth is a comparison of the wealth of various members or groups in a society, and is one aspect of the economy and social structure. Typically, various racial and ethnic groups possess differing amounts of wealth, and the same is true when people are grouped by age or education. Different jobs bring in greatly different wages; the pay for some jobs is thousands of times greater than the pay for other jobs.

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[edit] Definition of Wealth

Wealth is a person's net worth, expressed as:

wealth = assets - liabilities

The word "wealth" is often confused with "income". These two terms describe different but related things. Wealth is the items of economic value that an individual owns while income is an inflow of items of economic value. Wealth needs to be differentiated from income because an individual also has expenses, which are an outflow of items of economic value. The relation between wealth, income, and expenses is:

change of wealth = income - expenses

A common mistake made by people embarking on a research project to determine the distribution of wealth is to use statistical data of income to describe the distribution of wealth. The distribution of income is substantially different from the distribution of wealth. According to the International Association for Research in Income and Wealth (I.A.R.I.W.), "It is found that the world distribution of wealth is much more unequal than that of income."[1]

An individual can have the highest income in the world, but can also have the highest expenses in the world and it is thus possible that his wealth is, and remains, small. Contrarily, a person can have extensive reserves of capital that is not producing a return on investment and thus have extensive wealth but little income.

[edit] Statistical distributions

There are many ways in which the distribution of wealth can be analysed. One example is to compare the wealth of the richest ten percent with the wealth of the poorest ten percent. In many societies, the richest ten percent control more than half of the total wealth. Mathematically, a Pareto distribution has often been used to quantify the distribution of wealth, since it models an unequal distribution. More sophisticated models have also been proposed.[2] All indicators belonging to income inequality metrics also can be used as wealth inequality metrics.

[edit] Redistribution of wealth and public policy

In many societies, moderate attempts are made through property redistribution, taxation or regulation to redistribute capital and diminish extreme inequalities of wealth. Examples of this practice go back at least to the Roman republic in the third century B.C.,[3] when laws were passed limiting the amount of wealth or land that could be owned by any one family. Motivations for such limitations on wealth include the desire for equality of opportunity, a fear that great wealth leads to political corruption, to gain the political favor of a voting bloc, or fear that extreme concentration of wealth results in rebellion[4] or at least in a limited consumer base. Various forms of socialism, and capitalism to a lesser degree, make attempts to diminish the conflicts arising from the unequal distribution of wealth.

The economic/political system of communism forwards the idea that a government, serving the interests of the proletariat, would confiscate the wealth of the rich and then distribute benefits to the poor. Critics of state-managed economies, notably Milton Friedman, point out that the slogan "From each according to his ability, to each according to his need." turns ability into a liability and need into an asset. They cite the former Soviet Union and The People's Republic of China as examples of countries where, despite aggressive economic regulation, wealth continues to be distributed unevenly. However, such arguments are straw man arguments based upon misrepresenting the goals and nature of the governments of the Soviet Union and the People's Republic of China.

[edit] Wealth creation and its effects

Proponents of capitalism or Objectivist philosophy reject most redistributions in favor of wealth creation and abolition of trade barriers. Wealth can be created through several means, such as harvesting and selling natural resources, improving production methods to allow faster creation of wealth, or applying skill and labor to increase the value of materials.

The creation of wealth affects economic growth that can boost demand and trade, create jobs and increase wages. However, since wealth often trickles down unevenly, the standard of living may improve while simultaneously increasing wealth inequality. Thus wealth distribution must be considered alongside such factors as job opportunities, the costs of goods and services, and the base standard of living.

[edit] Charity

In addition to government efforts to redistribute wealth, the tradition of individual charity (such as tithing) is a voluntary means of wealth transference. There are also many voluntary charitable organizations making concerted efforts to aid those in need. The Bill & Melinda Gates Foundation is the largest transparently operated charitable foundation in the world.

[edit] 21st century

At the end of the twentieth century, wealth is concentrated among the G8 and Western industrialized nations, along with several Asian nations.

A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned barely 1% of global wealth. Extensive statistics, many indicating the growing world disparity, are included in the available report, press releases, Excel tables and Powerpoint slides.[5] Moreover, another study found that the richest 2% own more than half of global household assets.[6] Despite this, the distribution has been changing quite rapidly in the direction of greater concentration of wealth.[7]

[edit] Real estate

In particular, it can be argued that the large increases in property values of recent years has had the effect of redistributing the wealth from those without property to those with property.

The impact is more profound on people at lower income levels who are more likely to rent their home rather than own it outright. The poor are generally less likely to make rational decisions concerning risk, and therefore are more easily targeted by the aggressive marketing of subprime lenders[citation needed].

Land value (excluding improvement value) also has been alleged to be much maldistributed than income. While sizeable numbers of households own no land, few have no income. For example, 10% of land owners (all corporations) in Baltimore, Maryland own 58% of the taxable land value. The bottom 10% of those who own any land own less than 1% of the total land value. [8]This form of Gini Coefficient analysis has been used to support Land Value Taxation.

[edit] In the United States

The United States is one of the richest countries in the world, and in 2000, the mean wealth was $143,727 per person.[9] In the United States at the end of 2001, 10% of the population owned 71% of the wealth, and the top 1% controlled 38%. On the other hand, the bottom 40% owned less than 1% of the nation's wealth.

In 2003, the most-earning 1% of the population in the United States, which has a system of progressive taxation, paid over 34% of the nation's federal income tax; the most-earning 10% bore 66% of the total tax load; the top 25% of income earners paid 84% of the income taxes; and the upper half accounted for virtually the entire U.S. income tax revenue (nearly 97%).

[edit] Data, Charts, and Graphs

[edit] World Distribution of Household Wealth by Region and Country

Main article: World distribution of wealth
world distribution of wealth by country (PPP)
world distribution of wealth by country (PPP)
world distribution of wealth by region (PPP)
world distribution of wealth by region (PPP)
world distribution of wealth by country (exchange rates)
world distribution of wealth by country (exchange rates)
world distribution of wealth by region (exchange rates)
world distribution of wealth by region (exchange rates)

Data for the following table obtained from The UN-WIDER World Distribution of Household Wealth Report (The University of California still offers the pdf)

[edit] Table

Region Percent of world population Percent of world net worth (PPP) Percent of world net worth (exchange rates) Percent of world GDP (PPP) Percent of world GDP (exchange rates)
North America 5.17 27.1 34.39 23.88 33.67
Central/South America 8.52 6.51 4.34 8.49 6.44
Europe 9.62 26.42 29.19 22.8 27.06
Africa 10.66 1.52 0.54 2.36 1.01
Middle East 9.88 5.07 3.13 5.69 4.1
Asia 52.18 29.4 25.61 31.07 24.1
Other 3.14 3.7 2.56 5.4 3.38

[edit] References

  1. ^ http://www.iariw.org/abstracts/2006/daviesa.pdf
  2. ^ "Why it is hard to share the wealth"
  3. ^ Livy, Rome and Italy: Books VI-X of the History of Rome from its Foundation, Penguin Classics, ISBN 0-14-044388-6
  4. ^ "... A perceived sense of inequity is a common ingredient of rebellion in societies ...", Amartya Sen, 1973
  5. ^ "World Distribution of Household Wealth" UN et al. study
  6. ^ The rich really do own the world 5 December 2006
  7. ^ "Wealth Inequality Charts"
  8. ^ Kromkowski, "Who owns Baltimore", CSE/HGFA, 2007.
  9. ^ "World Distribution of Household Wealth" UN et al. study

[edit] See also

[edit] External links

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