Last week, a student approached me and asked a question. She showed me an interview segment in which Gary Stevenson1 discussed inequality. The student was baffled by the harsh reality of our current financial system. It wasn’t a complicated concept, but rather a harsh reality.
Wealth creates its own wealth with mechanical precision. Simply put, the rich get richer by doing nothing-zero effort.
Assume that someone has invested £100,000 and earns a modest 3%, or £3,000 per year, with no effort from the owner. Meanwhile, the economy is expanding at about 2% (IMF, 2024). Let’s also make the generous assumption that wages grow at the same rate (which they don’t, as there has been a significant disconnect between productivity and wages over the last 50 years), which means that workers are competing in a race they can’t close the gap, let alone win. Now, consider that £3,000 can be invested and earn the same return and that the rich invest in millions rather than hundreds of thousands or even imagine that someone inherits half a billion pounds.
This is not theoretical; it is the foundation of our economic structure.
Wealth holders’ fortunes grow organically as they reinvest their returns in new assets. The cycle perpetuates itself, widening the gap between those who own and those who work. Between 1980 and 2020, the top 1% saw their wealth grow at rates of 4-5% annually on average, while median wages in developed countries rose by only 0.4-0.8% annually after inflation (Piketty 2014; Saez and Zucman, 2016).
This disparity does not reflect differences in effort or ability, but rather structural imbalances that ensure those with an early advantage continue to gain ground. While most people exchange irreplaceable hours of their lives for compensation, those with capital have their assets generate income on their own. Labour alone cannot bridge this gap when wages barely keep up with rising costs and capital returns consistently outperform economic growth.
The contrast becomes even more pronounced during recessions. When a recession hits, workers face unemployment and rising costs. In contrast, the wealthy seize opportunities to acquire devalued assets, increasing their holdings while others struggle to make ends meet.
The recognition of these realities raises an important question: can such a system last indefinitely? The unsettling truth is that the system will continue to function exactly as intended without intervention. Left unchecked, the growing concentration of wealth restricts social mobility and entrenches inequality, eventually leading to economic stagnation.
History provides examples of societies that took deliberate steps to prevent extreme wealth concentration. In the post-World War II era, many countries implemented policies to rebalance economic power structures, such as increased taxation on passive income and mechanisms to strengthen worker protections.
Mid-twentieth century economic policy in the UK and US featured remarkably high top marginal tax rates—reaching up to 94% in the US (1944-1945) and 98% in the UK (1941-1946, 1974-1978)—creating natural limitations on unrestricted wealth accumulation (Scheve & Stasavage, 2016). During this high-tax period, the income share of the top 1% remained between 6-11% of national income, compared to 14-20% after tax cuts in the 1980s (World Inequality Database, 2022). These measures did not eliminate inequality entirely but effectively prevented it from reaching the destabilising proportions we see today.
Beyond taxation, several alternative interventions could help address the widening wealth gap. Expanding access to capital through community investment funds, employee ownership schemes, and public asset development could democratise wealth creation. Educational reforms focused on financial literacy and investment skills would enable more people to benefit from compound returns. Meanwhile, stronger antitrust enforcement and competitive market policies could prevent monopolistic wealth concentration, while broader corporate governance reforms—including worker representation on boards and profit-sharing arrangements—would distribute the gains from productivity more equitably throughout the economy.
The wealth machine, which allows capital to create more capital while society struggles, will not be corrected only through market forces. Without deliberate intervention, wealth will continue to concentrate in fewer hands, worsen societal divisions and impede economic opportunity. A society in which prosperity is based more on inheritance than effort is not only unfair, but also fundamentally unsustainable for all but the privileged few. The path forward necessitates collective action to rebalance a system that has shifted too far towards passive accumulation and away from rewarding productive contributions.
1Gary Stevenson is a former trader who made millions by anticipating rising inequality during financial turmoil before abandoning trading to study its long-term implications. His research concludes that as long as passive wealth grows faster than wages, inequality will continue to widen—regardless of individual work ethic or effort.
Sources
Economic Policy Institute. (2021). State of Working America Wages 2020: Wages grew in 2020 because the bottom fell out of the low-wage labor market. https://www.epi.org/publication/state-of-working-america-wages-2020/
International Monetary Fund. (2024, April). World Economic Outlook: Global growth projected at 3.2 percent in 2024, with disinflation proceeding faster than expected. https://www.imf.org/en/Publications/WEO
Organisation for Economic Co-operation and Development. (2022). OECD Employment Outlook 2022: Building Back More Inclusive Labour Markets. OECD Publishing. https://doi.org/10.1787/1bb305a6-en
Piketty, T. (2014). Capital in the twenty-first century (A. Goldhammer, Trans.). Harvard University Press.
Resolution Foundation. (2021). The UK’s decisive decade: The launch report for The Economy 2030 Inquiry. https://economy2030.resolutionfoundation.org/reports/the-uks-decisive-decade/
Saez, E., & Zucman, G. (2016). Wealth inequality in the United States since 1913: Evidence from capitalized income tax data. The Quarterly Journal of Economics, 131(2), 519-578. https://doi.org/10.1093/qje/qjw004
World Inequality Lab. (2022). World Inequality Report 2022. https://wir2022.wid.world/
Nikos Tzivanakis 