WHY THE RICH GET RICHER

12 Okt 2022

The general trend, in a capitalist economy governed by private property, would be for the rich to get richer—for inequality to increase steadily over time. That had been true in the initial stages of industrialization and remains the fact nowadays.

One reason: The wealthiest 1 percent put three-quarters of their savings into investment assets. By contrast, the middle class had 63 percent of their assets tied up in their homes, with home equity accounting for about a third since they have large mortgage debt.

The differences reflect the greater share of high-yield investment assets like stocks in the portfolios of the rich and the greater share of housing in the portfolio of the middle class.

Of course, the rich can afford to lose more—so they can take more risks and make more when times are good. But the lesson is clear: the wealth gap is caused in large part by the investment gap.

Some other psychological reasons should be considered as well, they are nicely reflected on the chart above, so spend some time to examine that.