The mathematical law that shows why wealth fl

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Mathematics Opinion

The mathematical law that

shows why wealth flows to
the 1%
Alok Jha

No one who is interested in an equitable society can

fail to be irked by unfairness in wealth distribution
but it is not unexpected

The Occupy protesters have got it right that focusing on the

extremes (a tax on the wealthiest 1%) will bring disproportionate
results for the number of people it will affect. Photograph: Murdo
MacLeod

Friday 11 November 2011 14.29 EST

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ne of the main issues raised by the

Occupy demonstrators is the inequitable
distribution of wealth. Their slogan focuses on
the extreme difference between the richest
and the poorest: "We are the 99%," say the
banners and T-shirts, pointing out that 1% of
the world's population has somehow clawed
its way to disproportionate money and power.
Time to do something about this unnatural

distribution, no?
The economist Edward N Wolff, of New York
University, has pointed out that, as of 2007,
the top 1% of households in America owned
34.6% of all privately held wealth, and the
next 19% had 50.5% of the wealth. This means
that just 20% of the people owned 85% of the
wealth, leaving only 15% for the bottom 80%
of the people. No one who is interested in an
equitable society can fail to be irked by this
unfairness.
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But the unfairness is, unfortunately, not

unexpected. What the protesters are fighting
(consciously or unconsciously) is the 80/20
rule variously called Pareto's principle, Zipf's
law, the long tail or Benford's law, depending

on what you are studying a staple in

scientific, economic and business textbooks,
the go-to idea to show how the frequency of a
set of natural events is not always what you
might recognise as, well, natural.
The maths underlying the
80/20 rule, known as the
power law distribution, is
found in many natural
The stories you
systems over which no
need to read, in
one handy email
single human has much
influence. Its concentration
Read more
of the extremes seems
built into the fabric of complex systems that
depend on numerous factors that continually
change over time.
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The simplest version says that 80% of your

company sales will come from 20% of your
customers; that 80% of the world's internet
traffic will go to 20% of the websites; 80% of
the film industry's money gets made by 20%
of its movies; 80% of the usage of the English
language involves just 20% of its words. You
get the picture.
A distribution based on a power law says
extreme events (or richest people, or biggest
websites) account for most of the impact in
that particular world, and everything falls off
quickly afterwards. The combined wealth of
the top 10 richest people in the world is orders
of magnitude greater than the next 10, which
is orders of magnitude greater than the next
10, and so on. The rest of the field sits in a
long, almost-irrelevant tail.
This distribution might sound odd. At school,
we're introduced to a different distribution,
the more familiar "normal" (or Gaussian),
which is best displayed in the bell-curve
spread of values around an average. Measure
the heights of a random selection of men, say,
and most will be around the average value,
with progressively fewer as you go in either
direction away from the middle. Plot this on a
graph and you get the bell curve.

Power law distributions, however, do not

cluster around a single value. The impact of
one big earthquake, for example, is bigger
than the sum of millions of smaller, more
common ones. Very few huge solar flares
erupt from the surface of the sun, but those
few are more significant than the endless
thousands of smaller ones. The same applies
to the numbers of big cities, the size of the
Moon's craters and the occurrence and
citations of scientific papers.
Once you know power law distributions exist,
they become very useful. The concept of the
"average" is useless, for example, when talking
about things that follow power laws. The
average height of the people in a room
(following the normal distribution) might tell
you a lot about the spread heights of people in
that room, but the average wealth of a
country's citizens (which follows a power law
distribution) tells you little or nothing about
how rich or poor most people are. And
listening to the maths also tells you that the
Occupy protesters have got it right that
focusing on the extremes (a tax on the
wealthiest 1%, say) will bring disproportionate
results for the number of people it will affect.
Ben Goldacre's Bad Science column will return
next year

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comments (221)
This discussion is closed for comments.
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Threads Collapsed

4 23

Strummered

21

11 Nov 2011 11:37

But there are still a fair few sociopathic muppets

banging on about the wonders of the 'Laffer
Curve'..............It's like Friedman on acid.
http://en.wikipedia.org/wiki/Laffer_curve
Report

ZanzibarLafayette

64

11 Nov 2011 11:40

I'm immensely proud of the protestors for making an

issue of this, when the Tories (funded to 50% by the
City), Labour (who think Leftism is a dirty word and are
now simply Tory-Lite) and that third party that will soon
be consigned to the dustbin of history just want it all to
go away.
Report

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