According to the Pareto principle, the top 20% billionaires possess 80% of all the property. Similarly, 80% of a company's profits come from 20% of its customers. Known as the 80-20 rule, this describes inequality in the world. But how does this happen?
High-income brackets basically have a longer time frame to make a living due to their richness. Therefore they can afford to invest stocks, real estate, etc., or deposit their extra money into a bank, which can be another source of income besides their earnings. Executives of a company can control their employees' salaries and even may have another option of laying them off when in a financial crisis. Without extra money or higher positions, however, life would be quite harder. All that the poor can do is hang on the edge; there is no room for investment or saving. Thus the wealthy classes have many choices to raise and save money while needy families do not.
This is why “the rich get richer”.
Inspired by this notion, Google in collaboration with Stanford University developed an algorithm called PageRank which determines the importance or value of a website by counting up its incoming links to the site from the vast ocean of the internet; the more linked from others, the more important the website should be. PageRank resembles citations of a paper and the impact factor of a journal that are the major criterions in the academia. Highly ranked websites appear in the top of search results when searched with a related word or phrase, and are thus viewed frequently. Web creators may even place a link to the website, which triggers a positive feedback effect that accelerates further access. This is how popular websites become more popular, in other words “rich” from the viewpoint of popularity. For Google it also leads to richness in the original meaning; many enterprises pay a lot to Google to publish an advertisement for the purpose of boosting reach to their own websites, and those ads are the biggest revenue source for the web giant.
The idea of the-rich-get-richer is similar to the “winner-takes-all” process as represented in the SNS market. MySpace used to be dominant with more than 200 million users all over the world, but has been losing its influence after Facebook became the largest community. Instead Facebook now overwhelms other SNS in membership with 750 million active accounts worldwide followed by Twitter's 200 million, and therefore is considered to be the current “winner”.
Taking these into account, Warren Buffett's insistence upon raising taxes sounds appropriate for the government to redistribute wealth since most successful persons such as executives and high earning investors including himself should own sufficient money aside from their funds, savings and daily expenses. The 80-year-old billionaire stated that his federal tax bill last year was $6,938,744, equal to only 17.4% of his taxable income.
Overall, we must accept the inequality; the world is dominated by a mere handful of the privileged class. Income inequality and economic polarization are unavoidable under capitalism. Nevertheless we should tackle the problem somehow in order everyone to live a happy life.
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