The Truth About Wealth Inequality: Why the Rich Get Richer and the Poor Stay Poor

The compound interest effect that drives wealth accumulation operates fundamentally differently for those who start with substantial assets compared to those who begin with little or nothing. Wealthy individuals can invest large sums in assets that appreciate over time, generating returns that can be reinvested to generate even larger returns in subsequent periods. This mathematical reality means that wealth grows exponentially for those who have enough capital to invest, while those without significant assets cannot access these wealth-building mechanisms. A person with a million dollars invested at a modest return rate can generate more passive income annually than many people earn from full-time employment.

The asset price inflation that has characterized developed economies over recent decades has primarily benefited those who already owned appreciating assets like real estate, stocks, and other investments, while creating barriers for those seeking to acquire these wealth-building assets for the first time. Housing prices, stock valuations, and other asset categories have increased much faster than wages, making it increasingly difficult for younger generations and lower-income individuals to access the investments that previous generations used to build wealth. This asset price inflation has been partly driven by monetary policies that have kept interest rates low, encouraging investment in assets while providing minimal returns for traditional savings.