The more money you have, the easier it is to make. Allow me to demonstrate. Here’s the performance of my investments in 2013 compared to the performance of the S&P 500:

Screen Shot 2013 10 19 at 10 44 AM

As you can see, I’ve had a very good year with some lucky investments in Tesla, Netflix, SunPower, and VMWare. But I only have $25,000 to invest. And I work very hard to save up that money. Also, I foolishly sold off my Netflix stock at $225 (It is now at $335) less than a year after I bought it, which means that I lose about a quarter of my profits to the IRS. Despite a high performing investment portfolio, I’m hardly ready to retire. In fact, I couldn’t even purchase a downtown apartment in a major American city.

Now, let’s say I were Larry Page, the 40-year-old co-founder of Google whose net worth is estimated at $25 billion by Forbes. And let’s say that, instead of my own year to date returns of 178.72%, I simply invested all my money in a S&P 500 Index Fund, which has a projected year to date return of around 25% for 2013. By simply putting all my money in an index fund — the easiest investment you could make — I’d earn a staggering $6.25 billion.

Now, granted, the stock market has been doing very well this year. But even if you look back over the past 100 years of the US stock market (including all the crashes), it averages about 10% per year. If Larry Page simply invests all his wealth in index funds, then he’ll make $2.5 billion this year, $2.75 billion the following year, $3.025 billion the following year, and so on.

How would you like to make $3 billion in a year by …. doing nothing at all? Just sitting around, watching your money pile up on ten percent autopilot. And, remember, this is in addition to the $30 billion you already have. In fact, a new study by Emmanuel Saez reveals that the wealthiest one percent of Americans have seen real income growth of 31% between 2009 and 2012, while income actually shrank for the bottom 90% of earners. The share of national income flowing to the rich, 19.3%, is the highest ever.

So what would you do with $3 billion in a single year? Even the largest philanthropic foundation in the world, the Gates Foundation has over 1,000 employees to disburse just over $3 billion a year. Giving away money responsibly is a surprisingly difficult task. And if you exclude Warren Buffett, who gave $3.1 billion to the charities run by his three children in 2012, the top ten most generous donors last year collectively gave away $2.28 billion to nonprofits — still far less than your $3 billion.

The standard counter-argument to Marx’s Law of Increasing Poverty (“the rich get richer and the poor get poorer”) is that 70% of the billionaires on Forbes 400 list are self-made while only 30% inherited their wealth. (Ryan Chittum at the Columbia Journalism Review questions Forbes’ definition of “self-made”.) But this doesn’t mean that the wealthy are losing their money — remember, the wealthiest one percent saw income growth of 31% while the bottom 90% of workers saw their income decrease over the past three years. Rather, what this tells us is that, in addition to the wealthy getting wealthier, there is a new dynamic at hand where a small handful of analytical, risk-taking technologists and hedge fund managers can become very rich very quickly.

And did I mention the importance of luck? Soon Twitter co-founder Jack Dorsey will be worth around $679 million and his fellow co-founder Ev Williams will be worth $1.65 billion. Nick Bilton’s New York Times Magazine profile of Twitter portrays Dorsey as the genius lone inventor of Twitter. In fact, the idea for Twitter hatched from TXTmob, an open source SMS messaging system that was developed for activists at the 2004 Republican National Convention. There are very rarely lone inventors in technology. Rather, there are people who are quick to take credit and those who are less quick to take credit. The difference is occasionally measured in billions of dollars.

In 1982, Forbes magazine began its annual list of America’s richest men and women. At the time, there were 12 billionaires in the country and fewer than 200,000 millionaires. Today the US is home to 442 billionaires and nine million millionaires. In 1992 the combined wealth of the Forbes 400 list was $300 billion. Today the wealthiest 400 individuals in the US are worth $2 trillion.

How did we get here and where are we headed? Writing in the Financial Times, John McDermott attempts to answer both questions by reviewing three recent books on the future of inequality. “Ninety-five per cent of our time on earth has been spent as ‘egalitarian’ hunter-gatherers,” he writes, but with material advances came unequal access to their benefits. The industrial revolution brought unprecedented economic growth to all households in developed economies. But then, in the early 1970s, “growth in US median incomes all but stopped, while inequality accelerated.”

Tyler Cowen’s 2011 book The Great Stagnation explains why median household income in the US stopped growing in the 1970s, and, indeed, why it has actually fallen in the past three years. His new book, Average is Over looks to the future, and it isn’t a pretty picture. “We will move from a society based on the pretense that everyone is given an okay standard of living to a society in which people are expected to fend for themselves much more than they do now,” he writes. The 21st century economy — our economy, and our children’s economy — will “pass along most of the higher rewards to a relatively small cognitive elite.”

The Italian philosopher Antonio Gramsci spent the majority of his life trying to answer a single question: Why don’t the majority poor rise up against the minority elite in what is clearly an unjust system? It’s hard to believe that 100 years later, the economy is more unequal today.

%d bloggers like this: