How do rich people get richer

Surveying all the data, Milanovic concludes that there seems to have been some sort of cap on inequality—a limit to the economic divisions a country can ultimately cope with. The rise of inequality in the United States during the nineteenth century, its subsequent fall during the middle decades of the twentieth century, and its resurgence in the past four decades provide an example of the wave at work.

Kuznets had come up with his inverted-U-shaped curve only because he had focussed on too small a slice of history.

With the rise of the emerging economies of Asia, he says, we now have two alternative forms of capitalism operating side by side. Like all schematics, this one elides a lot of details, but it provides a useful conceptual frame.

The rich are able to save more than the poor, and thus come to own a disproportionate share of the capital and the wealth in the economy. Since the return on capital, a major source of income for the rich, tends to be higher than the growth of wages, the rich become richer. Almost as potent is the way the benefits of education are distributed: rich people tend to be more highly trained, and can earn higher salaries; they are also able to earn higher returns on their capital, since their wealth gives them greater tolerance for illiquidity and risk.

In addition, they tend to marry other rich, educated people and are able to pass on more capital to their children, thereby perpetuating inequalities from one generation to the next. The rule of law is attenuated, decision-making can be arbitrary, property rights are not fully secure, and corruption is endemic. China is essentially going through a hugely accelerated version of the industrial revolution and the Gilded Age rolled into one.

Add in the insidious impact of cronyism, and a very unequal society results. Income distribution in China, it turns out, is even more skewed than in the United States, approaching the sort of levels one finds in the plutocratic republics of Latin America. What does all this mean for the future of global capitalism? Milanovic finds little on the horizon within either system that would curb the trend toward greater inequality, let alone reverse it.

Despite the subtitle of his new book, though, Milanovic wisely trains his attention on the past and the present, steering clear of grand predictions. As he has pointed out, the economics profession has an abysmal track record when it comes to seeing into the future. Attempts to make predictions about societies are, in his view, inherently doomed, because of the contingencies of human events. To have predicted that a decline in inequality was going to happen in the first part of the twentieth century, one would have had to foresee among other things the onset of a global conflagration in —and even as late as almost nobody did.

The problem with thinking in terms of waves or cycles is that doing so creates a false promise of predictability. Take the stock market. The contours of stock-market cycles become discernible only once they are over. The same seems to be true of inequality waves. Men have knowledge of the present.

As for the future, the gods know it, alone and fully enlightened. The enormous influence of the Chicago School helps explain why research into inequality and income distribution was long sidelined in this country. Those investors had an average of 29 percent of their investible assets in alternative investments like hedge funds or private-equity funds. Of course, the rich can afford to lose more — so they can take more risks and make more when times are good. But the lesson is clear: the wealth gap is caused in large part by the investment gap.

Skip Navigation. The debate over inequality has focused mainly on taxes, fairness and government. VIDEO Home Other Economics. The rich really do get richer, study shows. February 16, Reading Time: 5 mins read. Welcome to the machine The rich get richer.

Get more science news like this Share Tweet Share. Mihai Andrei Andrei's background is in geophysics, and he's been fascinated by it ever since he was a child.

All Rights Reserved. The pandemic led to the creation of a new underclass of workers. These are the overlooked folks who stock shelves at Amazon, shop for our food in supermarkets, deliver packages, drive Ubers, take care of elderly residents at nursing homes and engage in an array of other gig-economy and lower-wage work. Those essential jobs place these people in dire situations, which substantially increase their health risks. Usually these are dead-end, no-growth roles that they remain stuck in.

If this trend continues, America could become a medieval, feudalistic country. At the bottom of the pyramid will be the working class conducting all of the dirty jobs for low pay, at the cost of personal health risks. This is a BETA experience.