The Concentration of Economic Power

Don Boudreaux

The world is full of people who worry about the “concentration of wealth” allegedly caused by free markets. Some of this worry is simply envy masked as a more socially acceptable sentiment. Mature and economically literate people do not envy the success of others; instead, they applaud it and understand that a successful producer’s wealth is created rather than being extracted from the hides of the less-financially successful.

Some of this worry, though, is genuine and sincere — if still, in my judgment, unwarranted.

Regardless of one’s reasons for wringing one’s hands about the ‘inequality’ of wealth, it’s important to keep in mind that financial wealth is not the only source or form of ‘inequality.’ Each Member of Congress arguably has more financial influence than does Bill Gates or other tycoons acting in the market.

This wonderful post, over at Division of Labour, by Bob Lawson explains. Here’s a teaser:

Let’s explore this point a bit by comparing the concentration of financial power in the hands of the 535 members of the United States Congress with the concentration of financial power of the 535 richest people in the United States.

According to Forbes, the 400 richest people had a combined net worth of $1.57 trillion. Let’s simply assume the next 135 richest people had the same net worth, though they surely didn’t, as the 400th person–$1.3 billion each. That brings our estimate of the combined net wealth of the richest 535 Americans to $1.75 trillion.

But wait, this is net worth, which is a stock, not income, which is a flow. So let’s figure the annual income flow from the ownership of $1.75 trillion to be 10% of that amount. (I don’t know if this number is high or low. On the one hand really rich folks probably are good at making high rates of return. On the other hand much of that $1.75 in net worth is likely to be speculative, consumptive, and/or illiquid assets like real estate, yachts, artwork, etc where the return is difficult to determine without selling the item. It turns out, you could double or triple this estimated return and still make the point I’m going to make.) Our estimate therefore is that the richest 535 Americans have about $175 billion (10% of $1.75 trillion) to spend on an annual basis.

Ok, let’s compare this group with the 535 members of the US Congress. According to the latest Economic Report of the President, the annual outlays of the federal government amounted to $2.73 trillion in fiscal year 2007.

So I estimate that the 535 members of the US Congress enjoy over 15 times the financial power of the 535 richest Americans.

Advertisements
Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: