Why does wealth tend to concentrate in market economies even in times of great prosperity?

Answer 1

There are a number of reasons with simple ability and know-how, legal advantages for the already-wealthy, and a tax system that dramatically favors business owners over wage earners topping the list.

(1) Abilities and Know-How. The first point is probably the least politically correct but it's also an undeniable fact: people who already have money tend to be much more financially savy than those who don't. If you listen to the rich talk about money and the poor talk about money, you will hear two dramatically different stories being played out. The rich will talk about cash flow, balance sheets, different tax strategies, and technical terms like Sharpe Ratios, Cash-on-Cash Returns, and operating income. The poor tend to talk about debts, mortgages, and wages.

Fundamentally, the rich tend to understand money a lot better than the poor do. A main reason behind this is that we don't teach people about money in school. And this isn't limited to people from poor school districts: I went to expensive private schools and a top-ranked university, but I didn't learn anything about money until I took it into my own hands. It's not surprising, then, that the vast majority of people don't know about money and so become sucked into the cycle of paychecks servicing debt.

But most importantly, one of the things you'll hear rich people often say is that "The first million was the hardest." In other words, it wasn't until they had already enjoyed success that REAL wealth start accumulating around them. Simply, the wealthier you get, the easier it is to get wealthier.

(2) Advantages for the Already-Wealthy. The government, especially the SEC, structures it so that only a very small percentage of people can invest in the deals that will make them a lot of money. These are the people who are referred to as Accredited Investors. This is an actual legal definition that refers to income and net worth. Only when you are an Accredited Investor can you get in on the investments that lead to be super wealthy. Again, since there aren't many of these people, only a very few get the boom. The best that John Q. Public can hope to get in on is an IPO. While the IPO can bring very nice gains, it still misses out on the private offering before a company goes public.

While this might sound unfair, the SEC does this to protect people from getting scammed into unfair investments that they don't really understand and lose their life savings on.

(3) Most people in this country think that earning a higher wage will make them rich. In other words, they think working for someone else bring them great wealth. Of course, that's not the case. Before you deposit your pay check you've already paid two other entities: (a) the businesss owner, in the currency of your skills, labor, and time, and (b) the government in the form of income and payroll taxes. At the end of the day, you're lucky to go home with 60% of your wages, not to mention the opportunity cost that you've lost.

The rich, on the other hand, tend to own their own businesses. Not only do they have someone else working for them to make them money, but also they get a significant tax break at the same time. John Q. Public might pay 40% in taxes, but a business owner -- if they have things structured the right way -- can get away with paying a paltry 15% on their company's profits! Not a bad day at the office!

Anyway, I know that might not be as technical an answer as you are looking for, but that's how I see it. If you want a more in-depth discussion of the above, I highly, highly recommend the "Rich Dad, Poor Dad" series by Robert Kiyosaki. The books are simply fabulous.

Hope that helped!

Answer 2

Meg has a good answer, but I think it more than just that. Have you ever noticed that gas stations locate near each other? Or, that there are many furniture manufacturers in North Carolina? Or that there are thousands of high-tech firms in Silicon Vally?

This is not a coincidence. There are many benefits for capital and labor to locate close to other, similar types of capital and labor. Economists call this agglomeration.

For example, a high-tech firm is going to find lots of qualified labor in Silicon Valley, where other firms are already located. Similarly, if you are a software designer, your chances of finding a job are better if you go to Silicon Valley rather than Riceville, Iowa!

Answer 3

Wealth confers power and power gets you special treatment by the governments. So once you become wealthy you are likely to become even more wealthy.

Answer 4

No a socialist economic equipment won't be able to prosper with the aid of massive government intervention collectively as the loose marketplace equipment may be exploited by utilising executives of vast firms with ease. it particularly is larger to take the final of the two worlds and create a mixed economic equipment. * the U. S. economic equipment is a mixed one. no longer a loose marketplace economic equipment.