Distribution Of Wealth

Almighty Colin · 11-14-2002

So Adelphia was down here for a few days last week. I was bored and became interested in wealth distribution. Why do so few people hold so much money? According to Pareto's law, 80% of the people will hold 20% of the wealth. That old 80/20 rule. While it is not a perfect fit it is pretty damned good. In every country a small group of people hold a disproportionately large amount of money.

Dean M. Maki and Michael G. Palumbo performed a study of stock ownership in America and concluded that 80% of stock ownership was held by 20% of the individuals.

So I wondered if maybe 20% of the people make 80% of the income. It turns out that is not true. 60% of people make 87% of the income. It is not that unevenly distibuted. I wrote a computer program that disributes income at random to 1000s of individuals and it turned out that 68% of people made 80% of the income. Not too unlike the real curve. There is little difference between how much money people make and what it would be if income was given out at random $1 at a time.

So then I became interested in what happens if you allow people to accumulate wealth at random and earn interest on it. In the computer model, I permitted people to increase or decrease their existing wealth every year as a percentage of their income. Amazingly and quite quickly, Pareto's Law popped up. The more interest people could possibly accumulate the greater the difference between the wealthy and poor became. With the right amount of interest and/or time, Pareto's Law appeared.

People always say "the poor get poorer and the rich get richer". This is completely true. If you graph income for any population, you will get a bell shaped curve. As time goes by and there is both more income and more people, the curve widens so that the rich are richer and indeed (relatively) the poor get poorer. In 1967 4% of the income in the US was earned by the poorest 20% of the people and 44% was earned by the top 20%. In 1998, the poorest only made 3.6% and it has slipped quite steadily in that time. The top 20% meanwhile were earning 49%.

Well, that's what I did on my summer vacation.

Last edited by Colin at Nov 14 2002, 11:50 AM

11-14-2002	#1
Almighty Colin Members Want to see your own Advertising Here! Join Date: Oct 2002 Posts: 8,059	So Adelphia was down here for a few days last week. I was bored and became interested in wealth distribution. Why do so few people hold so much money? According to Pareto's law, 80% of the people will hold 20% of the wealth. That old 80/20 rule. While it is not a perfect fit it is pretty damned good. In every country a small group of people hold a disproportionately large amount of money. Dean M. Maki and Michael G. Palumbo performed a study of stock ownership in America and concluded that 80% of stock ownership was held by 20% of the individuals. So I wondered if maybe 20% of the people make 80% of the income. It turns out that is not true. 60% of people make 87% of the income. It is not that unevenly distibuted. I wrote a computer program that disributes income at random to 1000s of individuals and it turned out that 68% of people made 80% of the income. Not too unlike the real curve. There is little difference between how much money people make and what it would be if income was given out at random $1 at a time. So then I became interested in what happens if you allow people to accumulate wealth at random and earn interest on it. In the computer model, I permitted people to increase or decrease their existing wealth every year as a percentage of their income. Amazingly and quite quickly, Pareto's Law popped up. The more interest people could possibly accumulate the greater the difference between the wealthy and poor became. With the right amount of interest and/or time, Pareto's Law appeared. People always say "the poor get poorer and the rich get richer". This is completely true. If you graph income for any population, you will get a bell shaped curve. As time goes by and there is both more income and more people, the curve widens so that the rich are richer and indeed (relatively) the poor get poorer. In 1967 4% of the income in the US was earned by the poorest 20% of the people and 44% was earned by the top 20%. In 1998, the poorest only made 3.6% and it has slipped quite steadily in that time. The top 20% meanwhile were earning 49%. Well, that's what I did on my summer vacation. Last edited by Colin at Nov 14 2002, 11:50 AM __________________ Almighty Content. Your one stop for live content. Secret Friends, LATINA Secret Friends , My Cam Friends