why the rich get richer

Capitalism is a funny system. Suppose you all start out at the same time with the same resources. As soon as someone gains a small advantage, their position improves. It becomes easier for them to amass even more resources. At the same time the others struggle more to stay in place. Suddenly, the ones with an advantage are the favored party to amass more.

It is like the little rivulets in the park. I was hiking the other day in an South Bay park and noticed how erosion had changed the trail from my previous visit. There was a section of trail in a wide swooping turn that was angled downward. Throughout little rivulets carried water across the trail into the canyon below. At one point, all rivulets were of nearly the same size and all must have carried about an equal amount of water.  But in my absence something happened. Suddenly one or two of the rivulets became bigger and they "grabbed" the water from the adjacent ones. Now the trail was largely flat with two or three big gullies instead of an undulating surface with 20-30 little streams.

Today it was announced that the Oracle of Omaha, aka Warren Buffett had made an investment of $5 billion into Goldman Sachs. First, we note that Warren has connections to the firm, granting him wide access to executives and information. Second, we note that he got a sweet deal with 10% extra interest and options to buy more shares on the cheap. 

Goldman did not have much choice, they need the money. Also, Buffett knows his way around at Goldman. Thirdly, giving it to Buffett almost guarantees the value will go up. In times of crisis people look for heroes and saviors. And if there was ever a savior of capitalism, Buffett is the man. It is almost a self-fulfilling prophecy. 

The name Buffett makes it so the investment will attract other money and hence go up in value. And with the government poised to follow, Buffett is sure to become a major beneficiary of tax payer money. And nobody will feel he didn't deserve it. I.e. we are going to pay Warren well and rather quickly too. That should ensure him a 40%+ annualized return.

No such luck for the ones who are left behind. They will pay the bill instead. Like the tiny rivulets supplying water to the growing gullies, while drying out themselves, we will make Warren even richer than he already is. That is how capitalism "creates" wealth. It shift resources from the masses to the few. The few who will then put the others to work to create even more wealth -mostly for themselves, mind you.

This system has no internal checks and balances. It keeps flowing until a few rivers are left. Rivers so wide that the trail will ultimately collapse. Unless us smart people intervene to save the day.