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Fairness In Wealth Distribution

>> Thursday, December 31, 2009

The Pareto principle (also known as the 80-20 rule) states that, for many events, roughly 80% of the effects come from 20% of the causes. It has many applications. For example, in business "80% of your sales come from 20% of your clients". Or for more related events, we wear our 20% most favored clothes about 80% of the time; we spend 80% of the time with 20% of our acquaintances, etc.

The principle is also shown in the distribution of wealth. Where the 20% richest people own 80% of all the wealth in the world. The case is the same in Singapore. Depicted in this wine glass illustration.

Knowing this, do you think this allocation of wealth is fair?

Well, do share your thoughts in the comments.

In my opinion, to determine if it is fair or not, it is important to understand what it means to be fair. There are two schools of thought regarding fairness, (1) the rules are fair and (2) the outcome is fair.

For (1), I believe it is pretty obvious that it is to a certain extent quite fair. Everyone has the same resource of 24 hours a day. Everyone is gifted with a set of their own strengths. Everyone has the choice of choosing to be rich. So, the rules are fair, the rich do not have more time, have bigger brains or possess super powers. However, not everyone chooses to make the most of their time and strength to make a conscious effort to choose to be rich. (Of course, other factors like luck and inheritance do play a part as well, that's why I said "to a certain extent".)

For (2), it depends on how the outcome is viewed. If viewed from a perspective that it is a result of the amount of risk and effort put in to achieve the outcome, it will be a fair outcome. Imagine if you were to work very hard, completing 80% of all work, would it be fair to have 80% of the reward as well. Conversely if fairness is sought through taxing the rich to give to the poor, then there will be no incentive to work hard and there will be less jobs created, society as a whole will be worse off. (Again in some situations, it would seem unfair if the outcome was determine by luck like winning the lottery.)

Who said the world was fair anyway, but fairness is not important. That is how the world is and I learned that doing what the 80% of the people are doing will only achieve 20% of the wealth. I have to break out of old habits, change my perspective, and start doing what the top 20% rich are doing if I wish to join their ranks. That shall be my new year resolution.

"Insanity: doing the same thing over and over again and expecting different results." -Albert Einstein

The rich keep doing the same thing over again and get richer, the poor likewise keep doing and get poorer. To expect differently is insane. Complaining about it will not change anything but make yourself feel worse. Accept it, resign yourself to the fact and move on; or make the choice and take action afresh come 2010.

Happy New Year 2010!


Derek January 2, 2010 at 10:04 AM  

Hi Aaron,

I agree that we should not lament on our fate and although comparing will only make it worse, a little does can help spur oneself.

Let's look forward to a better tomorrow!

Wishing you a Happy and Prosperous New Year!

Lau January 2, 2010 at 10:29 AM  

Hi Derek,

It will be ideal if it is taken the positive way.

Have a great year ahead!



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