How does inequality of wealth skew the free market?

Restricting human endeavour to unreliable sales and inherited money sinks. Well played.

 

As you suggest, there's a difference between income and wealth. And it's safe to say the rich spend money (income) on different kinds of things than the poor. But spending habits have as much to do with economic choice as investment savvy. Consider the choice available to a waitress who depends on tips to live hand-to-mouth and a successful broker who depends on a million-dollar bonus to buy a yacht or invest in gold. There appears to be a fundamental economic law that requires the poor to remain poor and the rich to get richer.

 

But the vast majority of Americans live somewhere in the middle. What they do with their expendable income is one of the biggest factors in determining their future income and level of wealth. If they use that money to buy expensive brand new cars, entertainment centers or even big houses, they will find their net-worth to stay small. If they buy cheap, used cars, reasonable or free entertainment or reasonably inexpensive houses, and invest the rest of the money in stocks and bonds, they will see their net worth and income grow, pushing them into higher and higher levels of wealth.

The poorest don't have this option, they have to find a way to improve their income first. The richest don't need to worry too much about it, although many people with large incomes end up bankrupt because they don't consider this and spend all of their income on things that lose value. What really matters, is what the rest of us - the people in between - do with our income. That is what we can control and that is what will determine how we end up financially when we retire, and how old we are when we are able to retire.

 

There's plenty of empirical evidence of the effects of a plutocratic society. But economically speaking, demand drives growth. Inequality puts pressure on demand, which in turn puts downward pressure on jobs, wages, etc. What makes America so massive is we have 310,000,000 people who can afford goods and services. We have unprecedented demand. You starve the demand side (aka keep making the wealthy wealthier and poor poorer) you will get the results you are seeing right now, only worse.