Broad Oak: your emotional support animal

Sunday, June 09, 2013

Gedankenexperiment

Caveat: I am not an economist, I just like playing with numbers.

Consider an economy with 3 classes of people.

Class C: 50% of the population, earning an average of $50,000 per year, and spending all of it.

Class B: 49% of the population, earning an average of $100,000 per year, spending $95,000, and investing $5,000.

Class A: 1% of the population, earning an average of $1,000,000 per year, spending $300,000, and investing $700,000.

Assuming equal rates of return, class A will receive 74% of any gain in wealth.

Take modest growth of 3.03% per year for 60 years. The total wealth W has now grown to 6W.

Even if they started with nothing, class A now has 3.7W, almost 2/3 of the total wealth.

3 comments:

James Higham said...

With you so far. And, Paddington, sir?

Mark Wadsworth said...

Those figures look about right, but I'm not sure about your terminology. When you say "74% of any gain in wealth" don't you mean that they own 74% of whatever it is they all invest in?

Paddington said...

Mark - what I mean is that whatever the 'growth in wealth' actually is, class A get 74% of it.