Monday, July 25, 2011

Science Daily: Chance favors the concentration of wealth

Chance favors the concentration of wealth, study shows; New model isolates the effects of chance in an investment-based economy
ScienceDaily (July 21, 2011) — Most of our society's wealth is invested in businesses or other ventures that may or may not pan out. Thus, chance plays a role in where the wealth of a society will end up.

The study, "Entrepreneurs, chance, and the deterministic concentration of wealth," is published in the July issue of the journal PLoS ONE.

The model predicts that the rate at which wealth concentrates depends on the variation among individual return rates. For example, when variation is high, it would take only 100 years for the top 1 percent to increase their share of total wealth from 40 percent -- a recent level in the United States -- to 90 per cent,

"The implication is that nations with diverse economies should tend to outcompete on the world stage those with large concentrations of wealth, such as monarchies, or established democracies that have allowed their wealth to concentrate," said author Clarence Lehman, associate dean for research in the College of Biological Sciences.

Fargione added:.

To retain the benefits of a diverse capitalist economy, we need economic policies that counter what seems to be the innate tendency for economies to concentrate wealth and become less diverse.

Author Joseph Fargione, is an an adjunct professor of ecology, evolution and behavior in the university's College of Biological Sciences.
The simulations showed that a tax (or other mandatory donation to the public good) on the largest inherited fortunes would short-circuit the over-concentration of wealth. But the researchers don't advocate a particular policy, but note a policy is needed that protects long-term economic stability.
This study suggests that getting wealthy is more about luck more than skill. It also suggest that democracies that allow their wealth to be overly concentrated are less competitive on the world stage.

Joseph E. Fargione, Clarence Lehman, Stephen Polasky.Entrepreneurs, Chance, and the Deterministic Concentration of Wealth. PLoS ONE, 2011; 6 (7): e20728 DOI: 10.1371/journal.pone.0020728\

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