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Distribution of wealth

Distribution of wealth

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The distribution of wealth is a comparison of the wealth
Wealth
Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...

 of various members or groups in a society
Society
A society, or a human society, is a group of people related to each other through persistent relations, or a large social grouping sharing the same geographical or virtual territory, subject to the same political authority and dominant cultural expectations...

. It differs from the distribution of income in that it looks at the distribution of ownership of the assets in a society, rather than the current income of members of that society.

Definition of wealth


Wealth is a person's net worth, expressed as:
wealth
Wealth
Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...

 = asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

s − liabilities


The word "wealth" is often confused with "income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

". These two terms describe different but related things. Wealth consists of those items of economic value that an individual owns, while income is an inflow of items of economic value. (See Stock and flow
Stock and flow
Economics, business, accounting, and related fields often distinguish between quantities that are stocks and those that are flows. These differ in their units of measurement. A stock variable is measured at one specific time, and represents a quantity existing at that point in time , which may have...

.) The relation between wealth, income, and expenses is:
change of wealth = income − expense


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, "the world distribution of wealth is much more unequal than that of income."

If an individual has a large income but also large expenses, his wealth could be small or even negative.

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. Generally, income inequality metrics
Income inequality metrics
The concept of inequality is distinct from that of poverty and fairness. Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific...

 can be used as wealth inequality metrics.

Redistribution of wealth and public policy



In many societies, attempts have been made, through property redistribution, taxation, or regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...

, to redistribute wealth, sometimes in support of the upper class, and sometimes to diminish extreme inequality
Economic inequality
Economic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. The issue of economic inequality is related to the ideas of...

.

Examples of this practice go back at least to the Roman republic
Roman Republic
The Roman Republic was the period of the ancient Roman civilization where the government operated as a republic. It began with the overthrow of the Roman monarchy, traditionally dated around 508 BC, and its replacement by a government headed by two consuls, elected annually by the citizens and...

 in the third century B.C., 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 the belief that limiting wealth will gain the political favor of a voting bloc
Voting bloc
A voting bloc is a group of voters that are so motivated by a specific concern or group of concerns that it helps determine how they vote in elections. The divisions between voting blocs are known as cleavage...

, or fear that extreme concentration of wealth results in rebellion. Various forms of socialism
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...

 attempt to diminish the unequal distribution of wealth and thus the conflicts arising from it.

During the Age of Reason
Age of reason
Age of reason may refer to:* 17th-century philosophy, as a successor of the Renaissance and a predecessor to the Age of Enlightenment* Age of Enlightenment in its long form of 1600-1800* The Age of Reason, a book by Thomas Paine...

, Francis Bacon
Francis Bacon
Francis Bacon, 1st Viscount St Albans, KC was an English philosopher, statesman, scientist, lawyer, jurist, author and pioneer of the scientific method. He served both as Attorney General and Lord Chancellor of England...

 wrote "Above all things good policy is to be used so that the treasures and monies in a state be not gathered into a few hands... Money is like muck, not good except it be spread."

Communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...

 arose as a reaction to a distribution of wealth in which a few lived in luxury while the masses lived in extreme poverty. In The Communist Manifesto
The Communist Manifesto
The Communist Manifesto, originally titled Manifesto of the Communist Party is a short 1848 publication written by the German Marxist political theorists Karl Marx and Friedrich Engels. It has since been recognized as one of the world's most influential political manuscripts. Commissioned by the...

Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...

 and Engels wrote "From each according to his ability, to each according to his need." While the ideas of Marx have been embraced by various states (Russia and China in the 20th century), Marxism has seldom if ever worked in practice.

On the other hand, the combination of labor movements, technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...

, and social liberalism
Social liberalism
Social liberalism is the belief that liberalism should include social justice. It differs from classical liberalism in that it believes the legitimate role of the state includes addressing economic and social issues such as unemployment, health care, and education while simultaneously expanding...

 has diminished extreme poverty in the developed world today, though extremes of wealth and poverty continue in the Third World
Third World
The term Third World arose during the Cold War to define countries that remained non-aligned with either capitalism and NATO , or communism and the Soviet Union...

.

Charity


In addition to government efforts to redistribute wealth, the tradition of individual charity is a voluntary means of wealth transference. There are also many voluntary charitable organization
Charitable organization
A charitable organization is a type of non-profit organization . It differs from other types of NPOs in that it centers on philanthropic goals A charitable organization is a type of non-profit organization (NPO). It differs from other types of NPOs in that it centers on philanthropic goals A...

s making concerted efforts to aid those in need.

21st century


At the end of the 20th century, wealth was concentrated among the G8
G8
The Group of Eight is a forum, created by France in 1975, for the governments of seven major economies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. In 1997, the group added Russia, thus becoming the G8...

 and Western industrialized nations, along with several Asia
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...

n and OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...

 nations. An Energy Information Administration
Energy Information Administration
The U.S. Energy Information Administration is the statistical and analytical agency within the U.S. Department of Energy. EIA collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and...

 report stated that OPEC member nations were projected to earn $1.251 trillion in 2008, from their oil exports, due to the record crude prices.

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 1% of global wealth. Moreover, another study found that the richest 2% own more than half of global household asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

s.

Real estate


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. This form of Gini coefficient
Gini coefficient
The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....

 analysis has been used to support Land value taxation.

In the United States



According to the Congressional Budget Office
Congressional Budget Office
The Congressional Budget Office is a federal agency within the legislative branch of the United States government that provides economic data to Congress....

, between 1979 and 2007 incomes of the top 1% of Americans grew by an average of 275%. During the same time period, the 60% of Americans in the middle of the income scale saw their income rise by 40%. Since 1979 the average pre-tax income for the bottom 90% of households has decreased by $900, while that of the top 1% increased by over $700,000, as federal taxation became less progressive
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

. From 1992-2007 the top 400 income earners in the U.S. saw their income increase 392% and their average tax rate reduced by 37%. In 2009, the average income of the top 1% was $960,000 with a minimum income of $343,927.

In 2007 the richest 1% of the American population owned 34.6% of the country's total wealth, and the next 19% owned 50.5%. Thus, the top 20% of Americans owned 85% of the country's wealth and the bottom 80% of the population owned 15%. Financial inequality was greater than inequality in total wealth, with the top 1% of the population owning 42.7%, the next 19% of Americans owning 50.3%, and the bottom 80% owning 7%. However, after the Great Recession which started in 2007, the share of total wealth owned by the top 1% of the population grew from 34.6% to 37.1%, and that owned by the top 20% of Americans grew from 85% to 87.7%. The Great Recession also caused a drop of 36.1% in median household wealth but a drop of only 11.1% for the top 1%, further widening the gap between the 1% and the 99%. During the economic expansion between 2002 and 2007, the income of the top 1% grew 10 times faster than the income of the bottom 90%. In this period 66% of total income gains went to the 1%, who in 2007 had a larger share of total income than at any time since 1928.




Dan Ariely
Dan Ariely
Dan Ariely is an Israeli American professor of psychology and behavioral economics. He teaches at Duke University and is the founder of The Center for Advanced Hindsight.-Biography:...

 and Michael Norton show in a study (2011) that US citizens across the political spectrum significantly underestimate the current US wealth inequality and would prefer a more egalitarian distribution of wealth, raising questions about ideological disputes over issues like taxation and welfare.

Data, charts, and graphs


World distribution of household wealth by region and country


Data for the following table obtained from UNU-WIDER World Distribution of Household Wealth Report (The University of California also hosts a copy of the report)

Table

Region Percent of world population Percent of world net worth (PPP
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...

)
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 32.4
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

World distribution of financial wealth


In 2007, 147 companies controlled nearly 40 percent of the monetary value of all transnational corporations.

World distribution of wealth by gender


UNICEF has stated that women own less than 1% of the world's property. However, the source of the data is unclear, so the actual percentage may be unknown.

See also

  • Distribution (economics)
    Distribution (economics)
    Distribution in economics refers to the way total output, income, or wealth is distributed among individuals or among the factors of production .. In general theory and the national income and product accounts, each unit of output corresponds to a unit of income...

  • Generational accounting
    Generational accounting
    Generational accounting is a relatively new method of national accounting for measuring redistribution of lifetime tax burdens across generations from social insurance, including social security and social health insurance...

  • List of countries by distribution of wealth
  • List of countries by income equality
  • Redistribution (economics)
    Redistribution (economics)
    Redistribution of wealth is the transfer of income, wealth or property from some individuals to others caused by a social mechanism such as taxation, monetary policies, welfare, nationalization, charity, divorce or tort law. Most often it refers to progressive redistribution, from the rich to the...

  • Redistribution of wealth
  • Wealth condensation
  • Kinetic exchange models of markets
    Kinetic exchange models of markets
    Kinetic exchange models are multi-agent dynamic models inspired by the statistical physics of energy distribution, which try to explain the robust and universal features of income/wealth distributions....


External links