7 ms·

Of course it is...it's a natural consequence of compound interest. One's ability to accumulate additional wealth scales exponentially with their level of exist

• duxut_staglatz 7y ago
  Not if g >> r, of course.
• zacharytelschow 7y ago
  And the more technology we have, the more the differences in the ability to produce wealth in the first place will be magnified.
• FabHK 7y ago
  It scales linearly. If you have 3 (or 10) times as much as I have, and we both invest all our money in the same interest bearing account, then after N years you will still have 3 (or 10) times as much as I have. So, according to your model, the initial wealth distribution should not change. (Of course, you can argue that those with more wealth consume a smaller part of it, and that gives rise to inequality, but that's an issue beyond "compound interest"). EDIT to remove a typo
  • deleted 7y ago
    [deleted]
  • inerte 7y ago
    I don't think danhak compared 2 people. Anyway, if I started with 100k dollars and you started with 1M dollars (a 900k difference) and we both grew 50%, now I have 150k and you have 1.5M - a 1.35M difference. Still 9x, but way more $.
  • zeroxfe 7y ago
    > It scales linearly. > If you have 3 (or 10) times as much as I have, and we both invest all our money in the same interest bearing account, then after N years you will still have 3 (or 10) times as much as I have. Right, it's linear relative to other interest bearing accounts, but GP's point was that existing wealth of an individual grows exponentially.
  • the_gastropod 7y ago
    Why are we ignoring the consumption factor? That's a very natural part of the wealth accumulation game.
  • mbunch 7y ago
    Sure, it may not completely be a corollary of compound interest, but the fact that there are people that can live entirely off of the passive income generated by their assets and have some left over to invest further illustrates that the game is fundamentally different at higher levels of wealth.
• jgalt212 7y ago
  for sure, but you're missing the tax avoidance bit. Without tax avoidance, compound interest does nothing at most reasonable levels of r and t.
  • zeroxfe 7y ago
    I don't follow your logic. Compound interest grows capital exponentially, while taxation is linear. So, while tax avoidance helps, it's not necessary.
    • jgalt212 7y ago
      1.10^50 is 10X 1.05^50 taxes do a lot to flatten the distribution.
• billions 7y ago
  If course it is...it's a natural consequence of compound interest. One's ability to accumulate additional wealth scales exponentially with their level OF EFFORT. Even a wealthy person can lose their money if they don't make an effort investing it properly. How do people build wealth from the ground up? They work hard each and every day and that effort COMPOUNDS. They get smarter, more opportunities present themselves, they get better creating value for others. When you make strangers happy, they reward you with their money- a fair exchange! This is how wealth is made - compound effort.
  • petemill 7y ago
    Classic. Poor people just aren't working hard enough!
    • billions 7y ago
      How did you get the computer you're writing on, if not by the method described above?
      • deleted 7y ago
        [deleted]
      • lucideer 7y ago
        (not op but) parents supported me through a high quality education, in the safe wealthy western country they brought me into, helped me to develop social skills, and provided a stable upbringing which—all combined—gave me the confidence, comfort and skills to navigate the labour market, secure a well-paying job, and eventually use my wages to purchase this computer.
        • billions 7y ago
          Sound like you got there exactly by the method described above.
          • 7y ago
• lucideer 7y ago
  You're assuming capitalism, which isn't listed as an assumption with the question posed.
  • baddox 7y ago
    The subtitle of the article is "Wealth naturally trickles up in free-market economies, model suggests." "Free-market economies" might not mean exactly the same thing as "capitalism," but it's pretty close, and it's pretty clear that the article is discussing the current world as it is.
    • jtolmar 7y ago
      This is a very good place to pay attention to the difference between free markets and capitalism though. Compound interest scales exponentially because people can buy stock that gives them a stake in a company's profits in perpetuity, or rental properties that do the same. It's possible to imagine making it illegal to own private property (illegal to own things that are primarily for other people to use), while still having a market system for what's still allowed to be bought and sold (personal property).
      • baddox 7y ago
        Yes, there’s an interesting conversation to be had there, but it’s pretty clear that the article is not concerned with that discussion and is instead talking about the outcomes of our current economic systems.
• tkyjonathan 7y ago
  And what exactly gives your money compound interest? Its not like everyone has access to something that offers that..