D2 Concentration and Social Mobility

Topic

The relationship between the return on capital and economic growth, the income and wealth share of the top percentile, and the rate of intergenerational social mobility all describe the same mechanism—the concentration or opening up of the resource distribution—each from a different angle. The relationship between the return on capital and economic growth is the structural engine of this mechanism: if capital yields a higher return than the rate of economic growth, wealth concentrates mechanically, without the need for any other cause. The income and wealth share of the top percentile is the observable result of that engine, while the rate of intergenerational social mobility is its human counterpart: the extent to which that concentration does—or does not—allow for movement between one generation and the next.

The relationship between the return on capital and economic growth—the structural engine already described—measures whether capital appreciates faster than the economy grows. When the return on capital consistently exceeds economic growth, this relationship drives increasing concentration, directly fueling the income and wealth share of the top percentile.

The income and wealth share of the top percentile measures the fraction of total income or wealth concentrated in the highest tier of the distribution. When this share consistently crosses a historical threshold of polarization—driven by the return on capital outpacing economic growth—it triggers extreme concentration, the distributional anomaly previously described.

The rate of intergenerational social mobility measures how often a person changes socioeconomic strata relative to their parents. A drop in this rate below what would be expected for a given level of economic development—occurring when the income and wealth share of the top percentile is already high—signals a closing of the stratification system; this represents the very same blocked mobility identified earlier as one of the distributional anomalies accompanying extreme concentration. Taken together, these three indicators allow us to track the dynamics of resource distribution—whether toward concentration or dispersion—from three distinct angles: the relationship between the return on capital and economic growth as the structural engine; the income and wealth shares of the top percentile as the observable outcome of that engine; and the rate of intergenerational social mobility as its human counterpart. Monitoring all three simultaneously makes it possible to anticipate extreme concentration, as well as the accompanying erosion of the middle class and blocked mobility—the mechanism by which the "kinship intensity" track drags inequality along with it whenever it shifts gears.

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