Skip to content

Share the wealth or create more? The simple version.

December 1, 2009

Here is why distribution of wealth is more important than the size of the economy. This is the simplest way I can think of explaining it. There’s a better explanation here.

Think about it this way: You’re having dinner with four friends, and your host serves up a pie. Great. Everyone loves pie. When it is cut up into five slices however, it looks like this.

Did I say five slices? You need to look closer – the smallest slice is at the top there, between the green one and the red one. Can’t see it? Shame – that was your slice.

Now imagine you complain and say you’re going to go hungry. “I’m sorry”, says the host, “I see you haven’t got enough there. I clearly haven’t made a big enough pie.” And they do away into the kitchen and come back with a larger one, only to slice it up exactly the same way.

This isn’t a hypothetical pie chart. The percentages show the distribution of global household wealth, according to the World Institute for Development Economics Research. The red slice shows the wealth of the top 20% of the world’s population – North America, Europe, Japan, Australia and so on. The richest fifth of people own 85.2% of all the wealth. The little black line is the share of the world’s poorest fifth – less than 1%.

As I said, this is somewhat over-simplified. If you find yourself objecting, let me refer you back to the advanced page. But for anyone seeking to pick holes, some caveats below…

The most common objection to this example is that the economy is not a ‘zero-sum’ game – there is not a finite amount of wealth to go around, and one person’s gain doesn’t have to mean someone else’s loss. That’s true of the economy overall, but it’s not true of the materials economy. There is a limited amount of materials to go around, such as oil, fresh water, or wood. We ignore this at our peril, because if we use more renewable

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s