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In civilized countries men save—that is, set aside out of their income—wealth not to be spent for their own personal needs or pleasures but.
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• Catalog Record: The fallacy of danger from great wealth | HathiTrust Digital Library
• Catalog Record: The fallacy of danger from great wealth | HathiTrust Digital Library
• An encyclopedia of philosophy articles written by professional philosophers.
• What this handout is about

So, basically, We Co. The answer is simple… you now have a larger number of potential investors with much greater access to information and different expectations setting the new public company price. Public company disclosures and broad investor scrutiny go a long way towards providing true price discovery, which is an important part of what happened here.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing in private equity and private debt is subject to significant risks and may not be suitable for all investors.

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The highest quintile, after all, may be saving their increased wealth rather than spending it. Over time, this can lead to increasing disparity. But even here, the evidence shows that the disparity in wealth distribution has not increased nearly as fast as Piketty and his supporters believe.

By , the last year for which data are available, that proportion had barely risen, to roughly 36 percent. Moreover, the recent recession hit the wealthy especially hard. The stock market, for example, declined sharply during the recession, as did, obviously, the value of real estate. If inequality is your big concern, you should have been delighted by the recession. It appears, then, that inequality may not be as big a problem as commonly portrayed. After considering taxes, transfers, and other factors, the gap between rich and poor is neither as large nor growing as rapidly as Piketty and others have alleged.

But even if it were, the question arises as to why that should be condemned. Why is inequality ipso facto bad? Much of the debate over inequality is tied together with notions of fairness.

Fairness, after all, is one of the most fundamental values of American politics. The parents may have earned their estates through hard work, but the heirs did nothing beyond an accident of birth—pure, random luck—to earn an inheritance. And, in the wake of recent Wall Street malfeasance, the bank bailout, and the recent recession, the public increasingly believes that financial traders are up to no good. After all, how many people really understand what derivative trading and other financial activities are and how they benefit the overall economy?

And there certainly has been more than a little outright criminal activity in the finance industry. Recall Bernie Madoff. But do the stereotypes hold? Are the wealthy really either trust fund babies who inherited their money or shady Wall Street traders? Although Piketty and others worry a great deal about the role of inherited wealth, the evidence suggests that inheritance plays a very small role in how people become wealthy. Surveys vary, but it can be said with a fair degree of accuracy that the overwhelming majority of the rich did not inherit their wealth.

A report from BMO Financial Group found that two-thirds of high-net-worth Americans could be considered self-made, compared to a mere 3 percent who inherited the majority of their wealth. Interestingly, this study also found that nearly a third of these people are either first-generation Americans or were themselves born elsewhere. Moreover, the role of inheritance has diminished over the last generation.

A recent study by finance professors Steven Neil Kaplan of the University of Chicago and Joshua Rauh of Stanford found that fewer of those who made it on to the Forbes list in recent years grew up wealthy than in previous decades, falling from 60 percent in to just 32 percent today. Nor did most individuals on the Forbes list inherit the family business. Kaplan and Rauh found that 69 percent of those on the list in started their own business, compared with only 40 percent in Further support for the minor role of inheritance can be seen from the fact that wage income is responsible for a majority of net worth for wealthy Americans.

Among the top 10 percent in terms of net worth, wages accounted for 47 percent of their income in , higher than the proportion in Figure 5. Components such as interest, dividends, or capital gains, which are more likely, but by no means exclusively, derived from an inheritance, accounted for less than 18 percent of income for the top decile. In fact, it is not entirely clear that inheritance plays a role in increasing inequality: a recent paper by economists Edward Wolff of New York University and Maury Gittleman of the U.

The same dynamic holds for younger households and low-income households, in general. Nor are the rich primarily involved in stock trading or other financial services. According to one survey of the top 1 percent of American earners, slightly less than 14 percent were involved in banking or finance. Nearly 16 percent were doctors or other medical professionals. Lawyers accounted for slightly more than 8 percent, and engineers, scientists, and computer professionals another 6. Overall, the rich get rich because they work for it.

And they work hard. For example, research by economists Mark Aguiar of the Federal Reserve Bank of Boston and Erik Hurst of the University of Chicago found that the working time for upper-income professionals has increased since , while working time for low-skill, low-income workers has decreased. Clearly they do. But, for the most part the rich become wealthy because they earn it.

And they earn it by creating, producing, or providing goods and services that improve the lives of the rest of us. Certainly some families stay wealthy for generation after generation. Yet it is also true that wealth often dissipates across generations; research shows that the wealth accumulated by some intrepid entrepreneur or businessperson rarely survives long. In many cases, as much as 70 percent has evaporated by the end of the second generation and as much as 90 percent by the end of the third. Even over the shorter term, the composition of the top 1 percent often changes dramatically.

If history is any guide, roughly 56 percent of those in the top income quintile can expect to drop out of it within 20 years. Indeed, just as rises in capital markets can make some people rich, declines can wipe out their wealth quickly. And, this would not have required major gains. For instance, Lawrence Summers estimates that even a 4 percent real rate of return on their wealth would have kept them on the list. The heirs of great fortunes have done especially poorly.

For example, we might think of the du Ponts or Rockefellers as personifying multigenerational wealth. Thirty-eight people from those two families appeared on the list but none of the 16 du Pont heirs are currently on the Forbes list and there is just one Rockefeller, year-old David Sr.

Nor are there any heirs to the Hearst fortune. The Mellons are out too, as are the Dursts and the Searles. The descendants of families on the inaugural list account for only 39 percent of the total wealth on the list. For those who reach the 1 percent of income, spending long periods of time in that bracket is relatively rare. According to Hirschl and Rank, only about 2. Just 1. Attaining 10 consecutive years in the top 1 percent of income is even rarer: just over half of 1 percent do so. At the same time, it remains possible for the poor to become rich, or, if not rich, at least not poor.

Studies show that roughly half of those who begin in the bottom quintile move up to a higher quintile within 10 years. And their children can expect to rise even further. One out of every five children born to parents in the bottom income quintile will reach one of the top two quintiles in adulthood. Moreover, these studies focus on relative income mobility. Looking at absolute mobility, which considers whether children grow up to have higher incomes than their parents after adjusting for things like cost of living and household size, the vast majority of Americans have family income higher than their parents Figure 8.

Economic mobility may not be as robust as we would like.

An encyclopedia of philosophy articles written by professional philosophers.

In particular, upward mobility has been sluggish for decades. There is plenty of room to debate causes and solutions for this problem. But, it is simply untrue to suggest that the rich will stay rich and the poor will stay poor. Perhaps the reason that there is so much concern over economic inequality is that we instinctively associate it with poverty.

What this handout is about

After all, poverty is the flip side of wealth. And, despite across-the-board gains in standards of living, too many Americans remain poor at least by conventional measures. Slightly less than 15 percent of Americans lived in poverty in , including 16 percent of women, But, it is important to note that poverty and inequality are not the same thing. Would this be a bad thing? There is little demonstrable relationship between inequality and poverty.