Business Finance

Why the Rich Get Richer

Forget about the obvious reasons why the rich get richer, like compounding interest and inter-generational inheritance. Here are ten other important reasons why the rich keep on getting richer.

The rich keep getting richer.

rich get richer

It doesn't seem sustainable, but we're not here today to discuss why income inequality is gutting the world.

We're just here to look at why the rich do keep getting richer. Here are ten reasons that come to mind.

1. They Control Governments

It's sad but true. The governments of most countries are rarely controlled by the poor or even the middle class. To get power, you either have to grab it or buy it, and you have to be wealthy to do both. Once you control the government, you can use it to write laws that help you to make more money or privatize public assets for personal gain.

2. The Rich Hang Out Together

Rich people live near rich people. They see each other at their country clubs, their executive clubs and their yacht clubs. Those who are not rich get clubbed by these clubs because they don't have access to that exclusive inner circle. Business deals are done at these clubs, so if you are not at that table, you will be at other tables instead, most likely waiting on them and making minimum wage.

3. Regressive Tax Systems

Many states and many countries have regressive tax systems, which means that the less fortunate pay a higher percentage of their discretionary income than the wealthy do. Were the tax systems fair, the wealthy would pay more.

By not paying more, they bank a little money each year that effectively comes out of the pockets of the poor. Each year, that money can be invested and, through compounded returns on investment, turn into more wealth for the wealthy individuals that got away with paying less taxes.

In general, the rich game tax systems in ways the rest of us can never do, and that accelerates their wealth. Regressive tax systems, friendly tax codes and tax loopholes all help the rich to get richer.

4. Slimy Ways to Make Money

Whether it's pushing opiods like the Sacklers (allegedly) did or ripping off main street investors via high-frequency trading like hedge fund folks like Citadel billionaire Ken Griffin (allegedly) did, there are a lot of slimy ways to make a lot of money. If your brain tilts to greed and away from conscience, you can make a lot of money and build it into an even bigger pile over time. It's not illegal per se. It's just scummy. To be clear, not all rich people are making their money this way, but, yeah, quite a few are.

5. Crossing the Line into Illegality

Here, we're talking guys like Pablo Escobar who made $30 billion as a drug lord. But we also are thinking about Bernie Madoff who ran a Ponzi scheme that took him to $17 billion in net worth. And then there's Isabel Dos Santos, the richest woman in Africa, who is now being investigated for a host of (alleged) crimes. So, when we consider how the rich get richer, we can't rule out crime as a big driver of wealth building.

6. Litigation to Build Wealth

When the rich are threatened, and their wealth is in jeopardy, they lawyer up. Not just any lawyers, mind you. They pay for the best attorneys in the world, and it turns out, if you hire the right legal counsel, you can effectively buy justice. The rest of us can't afford that legal expertise, so even if we are in the right, we are bound to lose. So much for checks and balances. The rich control the executive, legislative and judicial branches of government. They are not going to let anything erode their wealth.

7. Paying Off the Watchdogs

Organizations like the SEC in the United States are supposed to protect the little guy. I knew someone who found convincing evidence that public-company CEOs were backdating their stock options to maximize their executive compensation. These CEOs were making tens of millions from this, and the SEC, when notified, did nothing. That's because there's a revolving door of private-company individuals being rotated into these watchdog organizations, and they are still loyal and beholden to the rich people they used to work for. It's by design, to emasculate any sense of oversight, not just at the SEC but at every similar watchdog organization. It's just one more way that the rich keep their wealth.

8. Not Giving the Poor a Chance

It goes without saying that the rich want monopolies whenever possible. One of the best ways to do that is to stifle competition. Massive wealth inequality lets you do that. It's like playing monopoly. Once somebody has Park Place and Boardwalk, with a few hotels, things start to get uncompetitive in a hurry. The rich are the only ones playing the game and that point. Ironically, they talk about how they love a free market, as if the rest of us actually had a chance to compete with them, given the head start they've got.

9. Breeding

We know that inheritance laws allow the rich to pass on their riches to their children. For example, a family like the Waltons, heirs to the Wal-Mart fortune, now have the same net worth as 30% of US citizens, on the lower end of the wealth distribution curve. But the rich tend to marry other rich people, which avoids any loss of wealth and instead actually helps make the rich richer. They meet at elite schools, at elite companies or at those clubs we discussed above.

10. Racism

Last but least, racism and other bad isms help to make the rich richer. If you don't give others a chance because of how they look, how they function, where they came from, where they live or how they talk, then it should come as no surprise that those people who are the recipients of your prejudice won't do well. In a mostly zero-sum world, their loss is your gain -- "you" being the wealthy and "them" being the poor. So, yes, racism is a big driver of how the rich get richer. Duh. If you're rich and don't get this, we can consider adding cluelessness as our #11 driver of how the rich get richer, but we said we'd stop at ten, so let's call it a day.

What have I missed? I skipped over the obvious things like compounding interest, but feel free to chime in with your perspective on other reasons the rich get richer.

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