Tuesday, May 1, 2012

A Different Pareto Principle

"Democratic government has this fundamental problem:  In broad terms, 20 percent of the people do most of the productive work and create most of the nation's wealth, but the other 80 percent command a heavy majority of votes."

Thomas G. Donlan

Well, this is certainly another view of the 1%!

It is also another take on the old "Pareto Principle," that everyone learns about in Econ 101 - the old 80/20 rule. 

This doctrine stems from the 1906 statement of an Italian economist named Vilfredo Pareto.  He observed that 80% of the land in Italy was owned by 20% of the people.  He was also a gardener, noticing that 80% of the peas in his garden came from 20% of the pods.

Considering this a natural occurrence, in both ways, he came up with his 80/20 economic principle.  Looking around at business activity, society incomes, a company's sales, and so forth, it is pretty much true all across the board! 

Generally speaking, in business, 80% of the profits come from 20% of the products; 80% of the sales are produced by 20% of the sales people; 80% of the profits come from 20% of the customers.  This goes on.  In this country the top 20% of income earners pay just over 80% of the taxes.  Again, this goes on.

This 80% of Mr. Donlan's less productive people has pretty much held true if you average out the last many presidential elections.  Just in the last three the winner in 2008 won 27%, in 2004 won 83% and in 2002 won 85% of the 3113 counties in the country.  Not naming names, but looking at an election map breakdown by county, does that not appear to hold true for the most productive counties in each election versus the least productive?  WHAT A CONTROVERSY THAT INTRODUCES!

For some time now, I have said that in this country the debate is no longer between left and right, or conservative and liberal (a misnomer).  It seems to me that the real debate is between the producers and non-producers, achievers and non-achievers, and those who give and those who feel entitled to be given to.  Note which group gets pandered to the most!  Note which group makes the most noise!  Note which group creates the most election controversies!

Thomas Donlan is the editorial page editor of Barron's, The Dow Jones Business and Financial Weekly, and is based in Washington DC.

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