Distribution of wealth

World Distribution of Wealth and Population in the Year 2000

Distribution of wealth is a comparison of the wealth of various members or groups in a society. It differs from the distribution of income in a manner analogous to the difference between position and speed.

Definition of wealth

Wealth is a person's net worth, expressed as:

wealth = assets − liabilities

The word "wealth" is often confused with "income". 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. Wealth needs to be differentiated from income because wealth is accumulated, while income is offset by expenses, which are an outflow of items of economic value. The relation between wealth, income, and expenses is:

change of wealth = income − expenses

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 (I.A.R.I.W.), "It is found that the world distribution of wealth is much more unequal than that of income."^[1]

If an individual has a large income but also large expenses, their wealth could be small or even negative (debt). For example, Thomas Jefferson had a large income all his life, and yet died $100,000 in debt. His contemporary, John Adams, had a small but steady income but lived thriftily and died with $100,000 in assets.^[2]

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.^[3] All indicators belonging to income inequality metrics also 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, to redistribute wealth and diminish extreme inequality.

Examples of this practice go back at least to the Roman republic in the third century B.C.,^[4] 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 gain the political favor of a voting bloc, or fear that extreme concentration of wealth results in rebellion^[5] or at least in a limited consumer base. Various forms of socialism attempt to diminish the conflicts arising from the unequal distribution of wealth.

During the Age of Reason, Francis Bacon wrote "Above all things good policy is to be used 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."^[6]

Communism 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 Marx and Engles wrote "From each according to his ability, to each according to his need."^[7] While the ideas of communism have throughout history enjoyed occasional popularity, they have seldom if ever worked in practice. Shakespeare mocks them in The Tempest: "I' the commonwealth I would by contraries execute all things...riches, poverty, and the use of service, none...all men idle..."^[8] The major communist states of the 20th century, the Soviet Union and The People's Republic of China, turned first to absolute dictatorship by leaders such as Stalin and Mao Zedong, and then, in the late 20th and early 21st centuries, to capitalism, though China continues to describe itself as communist.

The combination of capitalism, technology, and Social liberalism has done a great deal to diminish extreme poverty in the developed world today. Between 1950 and 1980, the gross domestic product of the United States grew at a rate of 2.2 percent per year^[9] and similar gains were made in Europe and Japan. But extremes of wealth and poverty continue in the Third World.

Characteristics of wealthy nations and poor nations

While it is not easy to say which is the cause and which the effect, almost all of the wealthiest nations in the world today have an elected government with relatively fair and open elections, a mixed economy with a capitalist business sector combined with socialist benefits for the poor and working classes, individual freedom, relatively low corruption, and family planning. Almost all of the poorest countries have a dictator or president-for-life, a government controlled economy, corruption, and a high birth rate.^[10]

Charity

In addition to government efforts to redistribute wealth, the tradition of individual charity (such as tithing) is a voluntary means of wealth transference. There are also many voluntary charitable organizations making concerted efforts to aid those in need.^[11][12].

21st century

At the end of the 20th century, wealth was and still is concentrated among the G8 and Western industrialized nations, along with several Asian nations. The OPEC countries are also wealthy. An Energy Information Administration report stated that OPEC member nations were projected to earn a net amount of $1.251 trillion in 2008 from their oil exports, due to the record crude prices.^[13]

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 barely 1% of global wealth. Extensive statistics, many indicating the growing world disparity, are included in the available report, press releases, Excel tables and Powerpoint slides.^[14] Moreover, another study found that the richest 2% own more than half of global household assets.^[15] Despite this, the distribution has been changing quite rapidly in the direction of greater concentration of wealth.^[16]

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.^[17] This form of Gini Coefficient analysis has been used to support Land Value Taxation.

In the United States

In the United States at the end of 2001, 10% of the population owned 71% of the wealth, and the top 1% controlled 38%. On the other hand, the bottom 40% owned less than 1% of the nation's wealth.^[18]

In 2003, the 1% with the highest salaries paid more than 34% of the nation's federal income tax; the 10% with the highest salaries paid nearly 66% of the total income tax; the top 25% paid 84% of the income taxes; and the upper 50% accounted for nearly 97% of US income tax revenue, primarily because, as stated above, the bottom 40% had comparatively no wealth (less than 1%) to be taxed in the first place.^[19] The US has a progressive tax structure which taxes less for smaller incomes; correlating income taxation to wealth is misleading.

Also, wealth is not taxed in the United States except with estate taxes upon death, so a small amount of wealth has nothing to do with who bears the most income tax. For instance, Warren Buffett has an estimated net worth of $62 billion (2008), ranked one of the richest men in the world. Yet his taxable income is $46 million (2006), about 0.1% of his net worth. And his tax rate is the below-average 17.7% (2006).

One percenter

A one percenter or 1%er is an individual that lies in top 1% of the American Tax bracket. These are the top earners in American society. It has been noted that the richest 1% of the American population owns as much as the combined wealth of the bottom 90%. Typical 1%er's include top-level executives, high-rung politicians, professional athletes, celebrities and wealthy heirs. Ivy League educations are common amongst these individuals. Famous 1%er's include Bill Gates, Warren Buffett, George Bush, Tiger Woods, Stephen Spielberg and Paris Hilton.

Data, charts, and graphs

• PowerPoint presentation: Inequalities of Development - Lorenz Curve and Gini coefficient
• The World Distribution of Household Wealth ^[14]
• Article on The World Distribution of Household Wealth report.
• The Federal Reserve Board - Survey of Consumer Finances
• Survey of Consumer Finances 1998-2004 charts - pdf
• Survey of Consumer Finances 1998-2004 data
  and resulting Gini indices for mean incomes: 1989: 51.1, 1992: 47.8, 1995: 49.0, 1998: 50.4, 2001: 52.6, 2004: 51.4
• Changes in the Distribution of Wealth in the U.S., 1989-2001
• Report on Net Worth and Asset Ownership of Households
• Projections of the Number of Households in the U.S. 1995-2010
• The System of National Accounts (SNA): comparison of U.S. national accounts statistics with those of other countries
• World Trade Organization: Resources

World distribution of household wealth by region and country

world distribution of wealth by country (PPP)

world distribution of wealth by region (PPP)

world distribution of wealth by country (exchange rates)

world distribution of wealth by region (exchange rates)

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

See also

• Asset
• Banking
• Debt
• Distribution (economics)
• Economic inequality
• Expense
• Free Market
• Generational accounting
• Global debt
• Guaranteed minimum income
• Income
• Income distribution
• Income redistribution
• Liability
• List of countries by income equality
• Lorenz curve
• Money
• Planned economy
• Poverty
• Social class
• Wealth
• Wealth (economics)
• Wealth condensation
• Wealth redistribution
• World Bank

References

External links

• U.N. statistics - Distribution of Income and Consumption; wealth and poverty
• Research on the World Distribution of Household Wealth (UNU-WIDER)
• CIA World Factbook: Field Listing - Distribution of family income - Gini index