The uneven distribution of wealth

Dec 12
19:51

2019

Beni Restea

Beni Restea

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Income inequality and the uneven distribution of wealth have plagued western society for as long as political systems based on the principles of economic liberalism have existed. So what causes these unfortunate phenomena, and what effects do they have on the populace at large?

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For millennia,The uneven distribution of wealth Articles mankind has been striving for growth in all areas of life. With an insatiable quench for knowledge and richness, we have managed to constantly improve the quality of life and now we can enjoy a longer and healthier life on this planet. Great inventions have fueled even more amazing innovations: from the way we build our homes, to the way we pay for the things that we need. After the industrial revolution, the gap between the poor and the rich had begun to grow. After the two World Wars, debt was employed to speed up recovery. And to this day, we are still paying the invoices for things that have been built decades ago. 

 

So, as the Nobel prize winner Angus Deaton had noticed, over the last few centuries, the rich have become richer, while the poor have become poorer. Of course, you may come across many explanations, but we fail to admit that debt plays a key role in the whole process of wealth distribution. 

 

Does debt make us happy?

 

Debt is money we haven’t worked for yet. But where does all that money come from? Obviously, from the richest people who have stacks of cash they don’t use and release them back into the economy through the banking system. In turn, they receive interest without having to move a finger. But they also risk losing all their money if they don’t recover the loans. It’s a paradox rarely discussed because it’s very uncomfortable: The rich make money without working. The poor remain poor because they have to work twice for the same money. Not only do they have to work to repay the principal, but they have to work for the interest too. 

 

Truth be told, debt makes both borrowers and lenders happy as long as they fulfill their commitments. On the one hand, borrowers are as happy as a clam when they are approved for a home loan or for other types of loans. On the other hand, lenders are over the moon when they cash in the principal and all the interest their borrowers owed. After all, even though lenders use the money deposited by high-net-worth individuals not their own money, they take huge risks managing their liquid assets and cash. We might also forget that rich people also use debt to enjoy the lifestyle they have always desired. Loans are not only for the poor and needy.   

 

Find a real estate agent on RealEstateAgent.com and ask him or her the same question. Does debt make homebuyers happy? Yes! Every day, they see the excitement in their eyes, regardless of their income level. Being pre-approved for a home loan nowadays gives them hope and a sense of well being that nothing else can. About 63% of homeowners have a mortgage, according to the US Census Bureau. However, talking with someone who has just started to rebuild their life after a foreclosure you realize that debt has a dark side, too. So, another problem is that our education system fails to prepare us for adulthood by constantly showing us the bright side of debt. It’s like every generation is shown the same side of a building and never the other side. We have to believe that debt makes us happy and not fear it, otherwise, the whole system would be in jeopardy.  

 

Debt isn’t that bad if you know how to manage it. Unfortunately, debt, unlike a coffee machine, doesn’t come with a user’s manual. You have to figure it out on your own through trial and error. Or follow the advice provided by financial gurus. 

Top 5 reasons for income inequality

 

Of course, there are more than five reasons, but these five causes seem to have a significant impact on income inequality.  

Geographic location

The gap between the West and the East has always been huge, although China, India, and Japan rank among the top 10 largest economies by GDP.  But each country experiences an uneven distribution of wealth within its borders as well. According to the Federal Reserve, in the US, 38% of the wealth was in the hands of the top 1% of the population - 1.7% more than in 2013. 

 

Does it matter where you grow up? Absolutely. Your neighbors, your schools, your colleagues - everyone has an impact on your future well-being. Growing up rich gives you a lot more power and freedom to pursue higher education and get influential positions in companies or even politics. In general, it is quite difficult to move from one social class to another. 

 

The degree of urbanization is also an important aspect of income inequality. In the US, 82% of the population lived in urban areas in 2017, according to Statista, while in China, 42% of the population still lived in rural areas. So, a high GDP doesn’t necessarily translate into a better quality of life. 

 

Education

Today, the best school districts mean real estate market. All parents want to send their kids to  reputable schools, but that has a price: a higher monthly payment on the house, a longer commute to work, higher taxes, and so on. If you think you’re raising a prodigy, there is no guarantee that he or she will enjoy the same thing as a grown-up. However, studying hard takes students closer to success and accomplishment. 

 

While in the US, most students have access to great schools, in other parts of the world, children are not so fortunate. So, when the population is not competitive in the labor market and not qualified for high-paying jobs, then their low incomes will have an impact on the whole economy. But with no education, there is also a higher risk of contracting sexually transmitted diseases. Teenage pregnancies are also a problem that leads to poverty. So, the lack of education takes its toll when it comes to wealth distribution and income inequality.

 

Sex

 

We have recently celebrated Women’s Equality Day - a day that reminds us that we are all equal, we share the same genes and the same capabilities. However, there is still a pay gap between men and women. In real estate, this is most obvious in commercial real estate - a sector still dominated by males. On the other hand, when you try to find a real estate agent, you’re more likely to hire a woman since roughly 60% of REALTORS® are women. 

 

Of course, there are jobs that only men can do and should stay that way. For example, loggers, miners, and construction workers are generally men. But it is quite sad to know that in many parts of the globe, women are paid a lot less just for the simple fact that they are women. 

 

Globalization and the information technology

 

China, India, and the US are the countries with the most Internet users. Ever since the Internet had spread, boundaries have begun to melt. To do business with companies from a different meridian is nothing unusual today. Not surprisingly, the same countries with the highest number of Internet users happen to be the largest exporting countries as well. 

 

When it comes to digitalization and Internet literacy, only 57% of the globe’s population uses the Internet, while the number of unique mobile phone users is roughly 5 billion or 67%. The richest countries in the world also have the highest number of personal computers per capita. According to worldatlas[dot]com, Switzerland, the US and Northern European countries have around 50 PCs per capita. These statistics only prove once again that information is power. 

 

The financial sector

 

The largest economies have the largest banks and act as lenders for poor economies like the third-world countries. According to World Bank, for every 100,000 people, commercial banks had 12,244 branches. China has some of the largest banks in the world, while in the US, Bank of America and Wells Fargo are the top two players. Also, Wells Fargo has the largest share of mortgages in the US. The financial sector is the main culprit behind the uneven distribution of wealth, even though many refrain from making such statements publicly or in front of the camera. Those who became rich during the Industrial Revolution as well as during the dot.com revolution have managed to accumulate an impressive amount of wealth, but now they use their wealth to keep others in debt. They’re the ones who know the true meaning of the phrase “let the money work for you” - a theory preached for years by Robert Kiyosaki. 

 

 Distribution of wealth in the USA

 

Private landowners in the US don’t get much publicity nowadays, however, those who made it in the top 20 released by the Land Report Magazine own over 500,000 acres each. Where did they get the money to purchase so much of this asset? For example, John Malone - who reigns over 2.2 million acres - has made his fortune in the telecommunication industry, just like the runner-up, Ted Turner - the founder of CNN. 

When money is not a problem, investing in complex commercial real estate developments is a piece of cake, too. Moreover, the rich manipulate the real estate market and take advantage of this basic need of human beings - the need to have a roof above their heads. When you use your wealth to invest in real estate and build gated communities and high-rise condo buildings, you get a much higher return on investment. Besides, the banks love real estate investors because they are the source of their future home loans - the loans with the highest margins. 

 

When debt becomes wealth

 

Understanding and accepting reality is a good way to fight feelings of anger and envy. Even if you’ll never own millions of acres of land, you can still find joy in the small things: a cup of coffee served during a peaceful morning with the love of your life, watching your children grow and become responsible adults, finding the hidden gem at a garage store… There’re so many things that we should be grateful for. Don’t fall in the trap of mistaking debt for wealth. Yes, it is true that over the years your debt will turn into assets. But that requires patience and perseverance. 

 

How to measure inequality? - The GINI Coefficient

Today, someone’s wealth becomes someone’s debt every day through the financial system. As unfair as this may sound, the richest are able to generate high income without any effort. The GINI Coefficient reveals the high discrepancy between high-earners and the rest. If the top 1% were making all the money and everybody had zero income, then the GINI index would have been close to perfect inequality. If all Americans would earn the same income, then, there would be perfect equality, and the GINI index would be 0. The GINI coefficient is always between 0 and 1. The lower, the better. In the USA, the GINI index is 0.39 according to OECD, which places us among the countries with very high income inequality. South Africa seems to be the country with the most severe income inequality, having a GINI index of 0.62. However, this situation is common on the African continent and only testifies that income inequality happens for at least one of the reasons described above. 

The uneven distribution of wealth is a phenomenon impossible to control. It’s here. It’s happening. And we have to find our way to happiness in the middle of a crowd that seems to have no idea how to distress and live life fully. We all know a workaholic, right? The desire to become richer is healthy up to a point. Then, it becomes dangerous for you and for the ones you love. Maybe it’s time to accept that the fastest way to get richer is to work less for the same money. So work smarter, not harder!