Editor’s note: This article was first published in August 2013. The figures, including 64% of the 99%’s income from work versus 39% for the top 1%, come from a 2013 US paper and refer to data from around that time.
Following the debate in the United States over raising taxes on the very wealthy, Joseph Rosenberg has produced a paper called Expanded Cash Income that clearly shows the real gap between rich and poor. The problem lies mainly in the way the 1% receive their income compared with the way the rest of the population receives theirs.
The results show that the 99% of the population get 64% of their income from their work alone. That percentage is an average: if we look at the poorest group, 100% of their total income would come from their paycheck. By contrast, the 1% (the great fortunes) get only 39% of their income from wages for their work. We’re not just talking about big business owners, but also about company CEOs and senior executives.
The rest of the 1%’s income comes from investments and/or business. This means that the great fortunes make more money each year from sources other than the “labor force”, regardless of the size of their income.
As income rises, the share of income that comes from investments grows. Put another way, it works like this:
- The richer you are, the more likely you are to make money through your own businesses and investments (above all, investments).
- The poorer you are, the more dependent you’ll be on working for someone else, and the first to fall when taxes go up, inflation rises and so on.
- Conclusion: if you know nothing about finance and investing, forget about building a great fortune. It’s impossible.
That’s why many rich people, even if they don’t say it openly and in public, think that poverty is synonymous with laziness and ignorance. Poverty is a state of mind more than an economic state, since the markets are open to everyone and anyone can make money through investing.
For there to be wealth, there has to be poverty. In other words, for there to be smart rich people, there must be ignorant poor people, whose consumption habits create wealth for big companies. Those companies tailor their marketing to a very easily tamed herd, to make them believe they need products they don’t really need and that investing is something for the rich, when in reality investing is what has created wealth.
The problem I keep seeing in most people is that they find finance boring, and few see the need to learn about it. That is the great ill suffered by most people classed as poor. I insist that there is no possible way for someone without financial knowledge to build up a large amount of capital, and if they do manage it, it will be a one-off and probably temporary.
Further reading
- Why are the poor getting poorer while the rich get richer?
- 12 things millionaires know that you should learn
- Which investments are the most profitable for reaching financial freedom?
Featured image: William Creswell, Public domain, via Flickr.
