Monday, April 11, 2016

Economic Inequality Is Not Increasing. Propaganda Is.

By Gary North

It never ends. We are besieged by articles on today's increasing economic inequality. These articles have three things in common:
1. Each one has a favorite explanation/boogeyman.
2. Each one calls for political reforms to make things more equal.
3. Each one fails to mention Pareto's 20/80 law.
Here is the main problem with these articles: economic inequality has not increased since at least 1897 -- the year that Vilfredo Pareto published his discovery: about 20% of the people in every European nation he studied owned about 80% of the wealth.

Every year, when about 1,500 of the richest people in the world meet at Davos, Switzerland to attend the World Economic Forum, a Left-wing group called Oxfam issues a report. The group rewrites the annual report and the accompanying press release, but it is always conveys the same message: about 1% of the rich own 50% of the world's wealth. I wrote a response to Oxfam and its report in 2014: "Envy Never Sleeps: Attacking the Rich." I did this again in 2015: "Pareto Statistic: The Wealthiest 1% Will Soon Own 50% of the World's Wealth."

The Right also indulges in similar expressions of outrage. Here is an example.


This was offered by Charles Hugh Smith. I like it because it includes a pair of graphics. Both of them are tied to the underlying image of a pyramid: straight sides, with the same angle all the way up, from base to capstone. The image is pure Pareto.


  1. North's calculation shows us how through 80/20 steps what the capstone should be, but just because the capstone is about right doesn't mean the other layers follow. CHS's pyramid shows 8% owning 85%. That exceeds the 80/20 rule by a large margin. That would roughly be 80/7.5. The 80/20 rule is thus broken. It follows that there is an error in the pyramid graphic. The sides should not be constant slope. That distortion in slope would the effect caused by central banking, should we accept the arguments and of something else if we don't. But there is obviously a distortion from 80/20.

  2. 1897 was the end of the gilded age when income inequality peaked. People who talk about inequality say there is inequality because the wealth distribution is comparable to 1897. Quite amusing to use that year as the basis for comparison and then say there is no increase in inequality. Inequality fell from 1933 until the mid-70s and has been rising since the mid-70s.