The Enriching Rich Get Richer

Megan McArdle has a good post on "Why Are the Rich So Rich?" though I think she's missing an important angle: larger markets.

If the market for a product is one million people, and I build something everyone wants with a profit margin of a dollar, I can make a million dollars. If my market is 100 million people, I can make $100M. This is a function of globalization, technology, and population growth. That probably explains quite a bit of the growth in income disparity at the high end.

This is why Sergey Brin is a billionaire -- he built something (Google) that maybe a couple billion people use on a daily basis. That would have been impossible without the Internet, globalization, and the fact there are now 6 billion people around. The same logic applies to the markets for other specialized skills -- athletes, entertainers, CEOs, financial traders.

Of course, the rich are generally enriching everyone else's lives as well, in ways subtle or obvious, because consensual exchange generally leads to gains for both parties. That's why you get paid in dollars, so you have a medium with which to efficiently exchange the fruits of your work for the fruits of other people's work.

There is of course a mechanism by which the rich can change the rules to ensure they stay rich, as the rich have tried to do since time immemorial, and its name is government.

posted by Dave on 09.23.10 at 12:46 PM





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That's true, but there's another effect, also related to population.

At something a little less than six standard deviations from the mean, the value of the Gaussian distribution is 1 x 10-6. If there are a thousand people in the distributed population, the chance of there being anyone six standard deviations out is one in a thousand. If there are a million people in the population, the value of the distribution is 1, so there's a good chance that there's somebody there.

I think of it as "room under the curve" -- the more people there are, the higher the curve is pushed up, making a space for somebody to exist at the extremes.

Regards,
Ric

Ric Locke   ·  September 23, 2010 05:59 PM

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