Reason Behind Polarization of Poor and Rich

well hope you are reading this while travelling or sitting next to the window having cup of tea or coffee at home . the question is why you are here and how you came here . probably the reason could be your curiosity towards the topi of this article but without materialism u wont come this much so far…sorry for revolving you round and round but i want to take your attention towards the privilege you have then others who are poor and cant affor this much materialistic stuff to reach this much like you.

well lets travel to the reasons what i think is behind the diff and polarization between rich and poor

will start from a definition

Social polarization is associated with the segregation within a society that may emerge from income inequality, real-estate fluctuations, economic displacements etc. and result in such differentiation that would consist of various social groups, from high-income to low-income. It is a state and/or a tendency denoting the growth of groups at the extremities of the social hierarchy and the parallel shrinking of groups around its middle.

This is known as Matthew effect –and it is a result of positive feedback; money comes where money is.

The main reason is capital incomes versus earned incomes. It all boils down to second order differential equation, where the zeroth order term denotes real property (doesn’t accumulate with time), first order term is earned incomes (accumulates linearly with time) and second order term is capital incomes (accumulates exponentially with time).

Most rich do not store their wealth as gold like Scrooge McDuck. They invest it, and their main source is capital income: dividends, shares, derivatives, interests etc. The more you accumulate wealth, the greater your capital incomes also are. And capital income is taxed by constant percentage tax.

Nobody ever has become rich by high wages. It is the capital incomes how you become rich. Investing and harvesting, not earning.

The rich do not as much work for money, but they make their money to work for money.

Earned incomes (salaries) increase on linear manner, and they are taxed with progressive taxation. Moreover, the earned incomes are subject to competition; employers tend to hire those workers who do most work with least wages. And employers have a natural monopsony. Unless there are strong unions to negotiate or the workers have special, marketable, skills, the salaries tend to fall to subsistence level due to the natural monopsony (the employer may dictate the salary). This is known as Race to the bottom .

This is the reason why rich get richer (most of their income is capital income which is subject to exponential growth and constant taxation) and why poor get poorer (their primary income is salary, which is subject to competition, race to the bottom and progressive taxation).

This is also known as the iron law of wages, and it is the consequence of a natural market failure – monopsony versus individual labourers. The solution is to form cartels – trades union – to have enough leverage on forming a counterpoise on employers’ monopsony. The result – collective bargaining – has enabled the poor avoid becoming impoverished – and to attain the market equilibrium between supply and demand. Cartel and monopsony even out each other, and form a ‘healthy’ market – the price negotiated by two equally strong partners is always right.

I have only one advice to the poor: unionize!

there are more reason but let it be left for future. this is enough for now..

stay connected – all the best and blessing to this team of voice of margin and small gift to this team..

The views and opinions expressed by the writer are personal and do not necessarily reflect the official position of VOM.
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