ZME Science
No Result
View All Result
ZME Science
No Result
View All Result
ZME Science

Home → Other → Economics

The rich really do get richer, study shows. Here’s why

It's all about taking risks: you don't need to take them when you're rich.

Mihai AndreibyMihai Andrei
February 16, 2021
in Economics
A A
Share on FacebookShare on TwitterSubmit to Reddit

Few topics are as polarizing as wealth. Everyone has an idea of how it should be spread and what’s not right in society, how some people have too much money and some have too little. But regardless of where you stand on the debate, one thing seems clear: wealth begets wealth. It’s not just a myth: a new study finds that the rich really do get richer, and they stay rich.

Welcome to the machine

The rich get richer. It’s a fact of life. Or is it? Is it really true, or is it just one of those things people say? Existing studies seem to suggest that despite income rises, the wealth gap is only getting wider, and the pandemic is likely not helping. Detailed data on wealth, however, remains extremely rare. But one particular Norwegian law helped.

In a new study, economists from the IMF and other institutions analyzed 12 years of tax records from Norway, offering an unprecedented look at how wealth evolves in time. The data was available because Norway has a wealth tax that requires assets to be reported to third parties to prevent errors. The data is made public under certain conditions, and researchers were able to analyze stats from 2004 to 2015.

The data shows that the rich really do get richer, and it’s in large part because they get higher returns on their investments.

Norway is one of the richest countries in the world, so most people are pretty well-off. But the richer people were in the first place, the richer they tended to be down the line. If someone who’s in the poorest 25% of the spectrum would have invested $1 in 2004, they would have, on average, $1.5 by 2015. That’s a return of 50%, and it’s not bad for 11 years. But someone in the top 0.1% would have $2.4 — a return of 140%.

There was another important finding: even when researchers controlled for each, background, and other factors, people in the top of the wealth scale don’t really seem to drop from this top. In other words, it’s also difficult to reach the top of the wealth scale if you’re not there in the first place.

Risk, moolah, and a wealth tax

So why does this difference in return emerge? Conventional wisdom dictates that richer people can afford risks and they make more money from this, but this doesn’t really seem to be the case. Instead, researchers found that richer people may be exposed to unique investment opportunities or afford wealth managers. Financial education, information, and relationships are also important — and that’s exactly what high status offers you.

RelatedPosts

Hunt for meteorite is on! Ontario, here we come
An ocean on Mars: New evidence shows the Red Planet hosted an ancient, massive ocean
Time travel proven impossible by scientists
It’s just crazy enough to work – NASA plans to send gliding probes to Mars

The wealthy status appears to be persistent in time, even across generations, researchers note. However, while the children of rich people stay rich, they don’t typically have as high a return on their money as their parents did. Turns out, wealth is inheritable, but skill and talent are less so.

There are, of course, important caveats to this study. It was carried out in Norway so results may not be representative for other parts of the world, but here’s the remarkable thing: Norway is one of the most progressive countries in the world, in regards to taxation. The country even levies a 0.85% net wealth tax on a person’s global wealth (all the assets they own, regardless of where they are situated). The tax is levied on net wealth over $170,000.

In other words, if Jeff Bezos and his $182 billion would be Norwegian, he’d have to pay $1.5 billion in tax every year — just on his wealth. The 2020 United States presidential candidate Elizabeth Warren also supported a wealth tax on the ultra-rich which was deemed outrageous in the US, but here’s the thing: despite this wealth tax in Norway, the rich still got richer. This is surprisingly in line with what economists who backed Warren claimed: that a wealth tax wouldn’t stop the rich from getting richer, but they would do so at a slower rate and in a way that would help the rest of the population, instead of producing extreme economic inequality. In the form it is most often discussed, the idea of a wealth tax in the US would apply to billionaires.

The Gini Index is a commonly used measure for economic inequality. Image via Wikipedia.

Despite its limitations, this study is in line with other research. Studies on income inequality are surprisingly scant, but they seem to show that whenever wealth is created, the vast majority of it flows into the pockets of the 1%.

Economic inequality, which is booming in many parts of the world, is more than just a moral problem. It has been associated with a higher crime rate, lower overall economic growth, and a tendency of the market to go “from bubble to bubble”. A recent study found that economic inequality also leads to higher unrest and even terrorism.

ShareTweetShare
Mihai Andrei

Mihai Andrei

Dr. Andrei Mihai is a geophysicist and founder of ZME Science. He has a Ph.D. in geophysics and archaeology and has completed courses from prestigious universities (with programs ranging from climate and astronomy to chemistry and geology). He is passionate about making research more accessible to everyone and communicating news and features to a broad audience.

Related Posts

Environment

This Plastic Dissolves in Seawater and Leaves Behind Zero Microplastics

byTudor Tarita
9 hours ago
Anthropology

Women Rate Women’s Looks Higher Than Even Men

byTudor Tarita
10 hours ago
Art

AI-Based Method Restores Priceless Renaissance Art in Under 4 Hours Rather Than Months

byTibi Puiu
1 day ago
News

Meet the Dragon Prince: The Closest Known Ancestor to T-Rex

byTibi Puiu
1 day ago

Recent news

This Plastic Dissolves in Seawater and Leaves Behind Zero Microplastics

June 14, 2025

Women Rate Women’s Looks Higher Than Even Men

June 14, 2025

AI-Based Method Restores Priceless Renaissance Art in Under 4 Hours Rather Than Months

June 13, 2025
  • About
  • Advertise
  • Editorial Policy
  • Privacy Policy and Terms of Use
  • How we review products
  • Contact

© 2007-2025 ZME Science - Not exactly rocket science. All Rights Reserved.

No Result
View All Result
  • Science News
  • Environment
  • Health
  • Space
  • Future
  • Features
    • Natural Sciences
    • Physics
      • Matter and Energy
      • Quantum Mechanics
      • Thermodynamics
    • Chemistry
      • Periodic Table
      • Applied Chemistry
      • Materials
      • Physical Chemistry
    • Biology
      • Anatomy
      • Biochemistry
      • Ecology
      • Genetics
      • Microbiology
      • Plants and Fungi
    • Geology and Paleontology
      • Planet Earth
      • Earth Dynamics
      • Rocks and Minerals
      • Volcanoes
      • Dinosaurs
      • Fossils
    • Animals
      • Mammals
      • Birds
      • Fish
      • Amphibians
      • Reptiles
      • Invertebrates
      • Pets
      • Conservation
      • Animal facts
    • Climate and Weather
      • Climate change
      • Weather and atmosphere
    • Health
      • Drugs
      • Diseases and Conditions
      • Human Body
      • Mind and Brain
      • Food and Nutrition
      • Wellness
    • History and Humanities
      • Anthropology
      • Archaeology
      • History
      • Economics
      • People
      • Sociology
    • Space & Astronomy
      • The Solar System
      • Sun
      • The Moon
      • Planets
      • Asteroids, meteors & comets
      • Astronomy
      • Astrophysics
      • Cosmology
      • Exoplanets & Alien Life
      • Spaceflight and Exploration
    • Technology
      • Computer Science & IT
      • Engineering
      • Inventions
      • Sustainability
      • Renewable Energy
      • Green Living
    • Culture
    • Resources
  • Videos
  • Reviews
  • About Us
    • About
    • The Team
    • Advertise
    • Contribute
    • Editorial policy
    • Privacy Policy
    • Contact

© 2007-2025 ZME Science - Not exactly rocket science. All Rights Reserved.