Yesterday’s post on the extreme wealth inequality in the USA, which was based on the above graphical presentation, has been challenged by Cullen Roche from Pragmatic Capitalism, who argues that the unequal distribution of wealth in the US is unexceptional by global standards:
You can see the video [above], but in essence, it shows us how roughly 85% of the wealth in the USA is owned by the top 15% of the population. What’s interesting is that Americans think the top 20% only own the top ~40% of the wealth. What’s even weirder is that they WISH the top 20% only owned 30% of the wealth.
The video is compelling in the way it’s argued, but it totally ignores a very well known principle in economics. The Pareto Principle (also known as the 80/20 rule) was discovered by Italian economist Vilfredo Pareto who found it alarming that 80% of Italy’s property was owned by just 20% of the population. He found that the same principle could be applied to a whole range of different things in life and in particular economics. If you’ve read a fair amount of economic, business, revenue or statistics in general, this shouldn’t surprise you one bit (though it might still anger you).
Interestingly, this isn’t even close to being an “American problem”. It’s a global issue. The Human Development Reports has found that over 80% of all global wealth is owned by the top 20% of the population. The bottom 40% of the population own about 3% of global wealth. And the top 1% of the richest global citizens own 40% of the world’s wealth, just as is shown in America, in the video. It’s also interesting to note that the average American is part of the global 1%. That is, the average American owns magnitudes more global wealth than the rest of the world does.
I’m not apologizing for this reality and I am not saying it’s optimal (Pareto famously argued the same thing), but this shouldn’t surprise ANYONE. The Pareto Principle is a well known reality that exists across a whole range of different things in our lives. It certainly doesn’t represent an optimal environment and it definitely isn’t fair. You certainly don’t have to love it, but you certainly shouldn’t be surprised by it.
Very interesting.
