They Don’t Just Hide Their Money. Economist Says Most of Billionaire Wealth is Unearned.

By Didier Jacobs – The 62 richest people in the world own as much wealth as half of humanity. Such extreme wealth conjures images of both fat cats and deserving entrepreneurs. So where did so much money come from?

It turns out, three-fourths of extreme wealth in the US falls on the fat cat side.

A key empirical question in the inequality debate is to what extent rich people derive their wealth from “rents”, which is windfall income they did not produce, as opposed to activities creating true economic benefit.

Economists define “rent” as the difference between what people are paid and what they would have to be paid to do the work anyway. The classical example is the farmer who owns particularly fertile land.

With the same effort, she can produce more than other farmers working on land of average productivity. The extra income she gets is a rent. Monopolists also get rent by overcharging customers as compared to what they could charge in competitive markets.

More generally, economists have identified a series of “market failures”, which are situations where full competition does not prevail and where someone can therefore overcharge – they would be ready to do the work for less, but lack of competition allows them to make a quick extra buck. Government can alleviate market failures through proper economic regulation; or it can make them worse.

Political scientists define “rent-seeking” as influencing government to get special privileges, such as subsidies or exclusive production licenses, to capture income and wealth produced by others.

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So how much of extreme wealth derives from rents? more>

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