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Does the “Rich-Get-Richer” Power-Law Truly Model Wealth Distribution?

In learning about distributions of “value” across an ecosystem, one topic covered in class was the power-law model, which describes the tendency for a great amount of value to be concentrated across a relatively low volume of the population, while an exponentially greater number of individuals concentrate at the lower values. This distribution predicts the concentration of unique words with written text (Zipf’s Law), as well as the sprawl of cities and population density.

However, one term that is often equated with the power-law model is the “Rich-Get-Richer” effect. The implication of this phrase is that, in addition to modeling language, city sprawl, and other phenomena, the power law models the distribution of wealth among a population.

Does the “Rich-Get-Richer” model truly reflect the ways in which wealth is distributed?

To answer this, Economic Scientist Michal Brzezinski [Brzezinski] used the Forbes list of wealthiest individuals from several large nations. Brzezinski ran regressions on the net worths of the 400 wealthiest individuals to try to match power-model exponents to the people listed. What he discovered, however, was that while wealth is distributed unevenly, only 35% of American, Russian, Chinese, and Global datasets fit smooth power-law distributions — suggesting that perhaps, the power-law model needs a new colloquial name.

While the power-law model does not describe wealth distribution in all cases, there is still a great deal of truth in the suggestion. A majority of the United States’ wealth is concentrated within the hands of an extraordinarily small segment of the population, while tens of millions of individuals live far below the poverty line.

There exists enough wealth in the United States for everyone to live above the poverty line. If one were to consider each individual’s welfare as having equal value, then the close-to-power-law distribution of wealth in the United States makes for an interesting phenomenon. If the wealth from a very small number of individuals was redistributed (the 10 top richest Americans have 675 billion dollars between them), the resulting money could raise more than 3 million families-of-four above the poverty line (22,000$/yr) for 10 years.

Simply put, the unhappiness of 10 individuals would be the price to pay for the survival of 12 million Americans. Such revelations are driving recent pushes for higher percentage taxation on America’s wealthiest individuals.

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Brzezinski, Michal. “Do Wealth Distributions Follow Power Laws? Evidence from ‘Rich Lists’.” NeuroImage, Academic Press, 22 Mar. 2014, www.sciencedirect.com/science/article/pii/S0378437114002544#f000010.

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