Investing Is More Luck Than Talent

Depending on which economist you ask, big inequalities in wealth are either an essential engine for growth—the reward that motivates people to work hard, innovate, and prosper—or a ticking time bomb capable of unleashing mass misery, social upheaval, or even violent revolution.

The academic researchers who study inequality are forever arguing about where that tipping point lies, and how much inequality is too much. Many observers wonder if we’ve begun to tip already, pointing to the surprisingly strong support enjoyed by the avowed socialist Bernie Sanders in the recent United States presidential election.

But what no one can deny is that in many countries around the globe, inequality has reached eye-popping extremes. In the U.S., for example, the top 1 percent of the population holds 42 percent of the national wealth. And the top 100 individuals now have an average wealth roughly 45,000 times the national average.

Where do such massive differences in wealth come from? The positive narrative surrounding inequality might chalk them up to the talent and effort of high earners. Social critics will also cite the many ways that talent and effort can be frustrated by prejudices based on class, race, or gender. Both sets of factors are obviously