How Does Wealth Inequality Grow?
Memory hook: wealth is a lake, income is a river, and the river fills the lake.
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1.What is the difference between wealth and income?
Memory hook: wealth is a lake, income is a river, and the river fills the lake.
2.Leo starts with 10,000 and Marge with 1,000, both at 5 percent for 20 years. What do they end with?
The gap grew from 9,000 to nearly 24,000 although the rate was the same.
3.Why does the gap in dollars grow at the same rate?
Growth multiplies by the same factor, about 2.65, so a bigger start earns a bigger absolute gain.
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Sources (4)
- Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends (Auten, Splinter; Journal of Political Economy 132(7), 2024, 2179-2227, via EconPapers)
- Income Inequality in the United States: A Comment (Piketty, Saez, Zucman, 2024)
- Eigene Rechnung: zwei Sparer Leo
- Exposé Folge 217 (05_szenen/exposee_v1.json)
Education only. Not financial advice.