What is Wealth Inequality?

What is Wealth Inequality?

Now that we have explained what Wealth is, we can start to explain what wealth Inequality is?

As we know, Wealth is about all the valuable things which exist in the world, and who owns them.

The Wealth Unequal Economy

In a Wealth Unequal Economy, an extremely small group of people, owns a very large proportion of the things in the world.  This increasingly describes the world that we live in, with less than 1% of the World’s population now owning over 50% of the World’s Wealth.

In a World like this, people are increasingly split into two groups.  A very small Wealthy group, who own enormous amounts of wealth in the form of land, property, companies, loans, raw materials and other forms of wealth, and an extremely large Wealthless group, who own zero or very little wealth.

(At the moment, in rich countries like those in Europe and the United States, we do have a reasonably large “middle” group who own reasonable, but not very large amounts of wealth.  This shows that, at least in Europe and the United States, Wealth Inequality is not as extreme as it is in many other countries, and it is not as extreme as it could be.  As Wealth Inequality has increased in recent years, this group has been shrinking, and, if Wealth Inequality increases, it will continue to shrink)

Let’s consider the situations of these two groups.

The Wealthless

The Wealthless group is very large in a Wealth Unequal Economy.  The more unequal Wealth Inequality is, the larger and poorer the Wealthless group will become.  These people do not have enough wealth to be able to own a house.   They don’t own enough to afford a share in the land, machinery and companies which are used to make food, or the land, machinery and companies which are used to produce energy.  They therefore need to find work if they are going to be able to shelter, feed and clothe themselves and their families.  The lives of these people and their families genuinely depend on them being able to find work, so if they are unable to find work they are in a pretty desperate situation.  We could describe them as desperate to find work.  In some countries there are social safety nets to protect these people to help them if they can’t find work, although in many cases these safety nets are being reduced.  As these people do not have the wealth to provide shelter, food and other basic essentials immediately for themselves, we can safely say that, if they are able to find work, they will spend a large proportion of the money that they make on getting access to these important essentials.

The Wealthy

The Wealthy group is a very small group in a Wealth Unequal Economy.  The more unequal Wealth Inequality is, the smaller and richer  the Wealthy group will become.  These people own enormous amounts of Wealth in the form of land, houses and other buildings, and productive companies and machinery.  They own the majority of industries which provide food, energy and other basic essentials, as well as all other industries.  Houses, land, machinery and companies (as well as most other forms of wealth), generate large amounts of Wealth Income for these people, in the form of rents, profits, dividends and interests.  They also have the ability to work to earn extra Work Income, if they want to.  Because these people earn such large Wealth Incomes on top of their Work Incomes, they are able to devote very large percentages of their income to saving.  This means they put aside some portion of their income every year to increase their wealth.  In general, these people own their own houses, so do not pay rents, instead, they receive rents from other people.

It is important to recognise the different ways in which the Wealthy and the Wealthless use their income.

– The Wealthless devote almost all their income to paying for consumption such as housing, food, and energy.  If they are able to accumulate some wealth during their working lives, they generally spend it to get through their retirement.

– The Wealthy devote the vast majority of their income to saving.  It is often possible for these people to spend less than their Wealth Income (income generated from rent, interest or profits) every year.  This means that, even if they don’t work, the Wealth of these people can increase quickly.

More Wealth Inequality means lower spending

The fact that the Wealthless spend their money on paying for consumption, and the Wealthy spend their money on saving is very important.  The more unequal Wealth Inequality is, the less Wealth is held by the Wealthless, and the more Wealth is held by the Wealthy.  Since the Wealthless spend almost all of their income, and any wealth they manage to accumulate, within their lifetimes, and the wealthy spend a far smaller proportion of their Income, and often actually none of  their Wealth, this means that there is much less demand for overall spending in a Wealth Unequal economy.  The more Wealth that is held by the Wealthy, and the less that is held by the Wealthless, the lower overall demand for spending will be.

What this means is that, in a Wealth Unequal World, we have a very large group of people, desperate for their lives to find work, and a very small number of people as potential employers, who have a very low tendency to spend their money.  This means that, in a Wealth Unequal economy, it will always be a big struggle for Wealthless people to find jobs.

So now we understand what a Wealth Unequal World is.  A Wealth Unequal economy is an economy where almost all of the valuable land, properties and assets in a world are owned by a small number of people.  Most people own very little or no wealth, and must find jobs in order to live.  But the very wealthy spend a proportionally small amount of their money, so there is not a lot of demand for spending.  A Wealth Unequal world is a world with a lot of people very desperately looking for employment, and not a lot of people looking to spend money.

Now that we understand what the Wealth Unequal World is.  Let’s move on to The Wealth Unequal Economy.


2 thoughts on “What is Wealth Inequality?

  1. Interesting. In a wealth unequal economy surely the ‘wealthy’ need to spend money repairing and maintaining their assets plus they have a large disposable income so will still buy stuff (handbags, cars, visiting restaurants etc.)

    I agree that they spend a small PROPORTION of their income, but it still might be a large amount.

    Do you see what I mean?

    What are your thoughts?

    • Hi there. Yes you are exactly right that the spending of the rich (per person) is higher than the spending of the poor (per person). The idea I am trying to explain here is that the spending of the rich (per pound of wealth/income) is much lower than the spending of poor (per pound of wealth income). That means that if we transfer wealth from the poor to the rich, spending overall in the economy will fall, since the poor change their spending much more in reaction to changes in their wealth. I hope that that makes it clearer!

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