Rising Wealth Inequality: Should We Care?
Introduction
Yarek Waszul Many studies have shown that income inequality is rising. In several different types of communities, median family income is lower now than 30 years ago. Yet an intriguing survey by Michael Norton and Dan Ariely found that Americans believe wealth distribution to be far more equal than it actually is and, if given a choice, they would select an even more equitable scenario.
Why do Americans seem relatively unperturbed about growing income inequality? Is it a lack of awareness, or are there other factors?
Why do Americans seem relatively unperturbed about growing income inequality? Is it a lack of awareness, or are there other factors?
Rising Wealth Inequality: Should We Care?
Why do Americans seem unperturbed about the growing gap between the rich and the poor?
Living Beyond Your Means
March 21, 2011
Michael I. Norton is an associate professor at the Harvard Business School. He is currently co-writing a book on money and happiness.
In a recent survey of Americans, my colleague Dan Ariely and I found that Americans drastically underestimated the level of wealth inequality in the United States. While recent data indicates that the richest 20 percent of Americans own 84 percent of all wealth, people estimated that this group owned just 59 percent – believing that total wealth in this country is far more evenly divided among poorer Americans.
What’s more, when we asked them how they thought wealth should be distributed, they told us they wanted an even more equitable distribution, with the richest 20 percent owning just 32 percent of the wealth. This was true of Democrats and Republicans, rich and poor – all groups we surveyed approved of some inequality, but their ideal was far more equal than the current level.
Why then, given the consensus on this more equal America, are Americans not clamoring for redistribution?
The actual United States wealth distribution plotted against the estimated and ideal distributions across all respondents. See more details. First, the expansion of consumer credit in the United States has allowed middle class and poor Americans to live beyond their means, masking their lack of wealth by increasing their debt. We might think that people who have "zero net worth” have nothing. But in fact, having zero net worth increasingly means owning a lot (cars, televisions, even houses) – but also owing a lot. As a result people with zero net worth, and even negative net worth, can still feel that they are living the American dream, doing “better” than their parents did while keeping up with the Joneses.
Second, poorer Americans’ belief in social mobility – despite strong evidence of its rarity – causes negative reactions to policies that would seem to benefit them, like raising taxes on those who earn and own a lot more. Why would the poor oppose taxes on the wealthy? Because many believe that they, or at least their children, will eventually be wealthy, voting for taxes on the rich may feel like voting for taxes on themselves. As a result, even the word “redistribution” has negative connotations.
My colleagues and I are now exploring whether educating Americans about the current level of wealth inequality (by showing them charts and pictures) might increase their support for policies that reduce this inequality. In addition, we are assessing whether different forms of redistribution – for example, raising the minimum wage, or longer term interventions like reducing disparities in education – are less likely to evoke heated opposition, and perhaps increase advocacy for greater wealth equality.
Easy consumer credit and a belief in social mobility have reduced the clamor for wealth redistribution.
Why then, given the consensus on this more equal America, are Americans not clamoring for redistribution?
The actual United States wealth distribution plotted against the estimated and ideal distributions across all respondents. See more details. Second, poorer Americans’ belief in social mobility – despite strong evidence of its rarity – causes negative reactions to policies that would seem to benefit them, like raising taxes on those who earn and own a lot more. Why would the poor oppose taxes on the wealthy? Because many believe that they, or at least their children, will eventually be wealthy, voting for taxes on the rich may feel like voting for taxes on themselves. As a result, even the word “redistribution” has negative connotations.
My colleagues and I are now exploring whether educating Americans about the current level of wealth inequality (by showing them charts and pictures) might increase their support for policies that reduce this inequality. In addition, we are assessing whether different forms of redistribution – for example, raising the minimum wage, or longer term interventions like reducing disparities in education – are less likely to evoke heated opposition, and perhaps increase advocacy for greater wealth equality.
Why aren't American's clamoring for wealth redistribution? Most of are smart enough to know that this is about finding more money for the State and Federal governments to take from individuals and waste. Most of us trust the rich to be less wasteful with their own money than we do the government. Experience has proven us right time after time and a poor person has never hired me, not even once.
So if you feel the country would be better off with redistribution do it without letting the government handle the money.
So if you feel the country would be better off with redistribution do it without letting the government handle the money.
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When a country has no common binding history or myths but only the opportunity for self aggrandizement, there isn't much else to do for your children but get as much as you can now.
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I would assume that most of the wealthy in the USA have created wealth rather than inherited it.
If the idea is to "redistribute" this wealth, what is the incentive for creating a successful business that leads to this wealth or to put it differently, what will be the incentive for the poor to work harder and aim
to move up the net worth ladder.
If the idea is to "redistribute" this wealth, what is the incentive for creating a successful business that leads to this wealth or to put it differently, what will be the incentive for the poor to work harder and aim
to move up the net worth ladder.
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Social Mobility remains possible, but only if one has knowledge of their position and is willing to make sacrafices. This usually means giving up most of your friends and sidelining your family go to a fairly high end college for a marketable degree, and moving to an area where you can make good connections. You have to set high goals and fight to achieve them, and leave behind negative influences in your life, which in this case would be anyone making less than you want to earn.
Most people who grow up in a poor background tend to be risk adverse and want to stay with familiar things. They feel that family connections and approval are more important that success, and are not willing to sacrafice everything to climb the social and economic ladder. So they work a so-so job and don't set their goals high, and remain in the poverty trap.
Most people who grow up in a poor background tend to be risk adverse and want to stay with familiar things. They feel that family connections and approval are more important that success, and are not willing to sacrafice everything to climb the social and economic ladder. So they work a so-so job and don't set their goals high, and remain in the poverty trap.
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why don't we hate the rich is the real question?
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I don't need to be educated as to why we have wealth inequality. The causes are very simple...single parent households, lack of a high school education, the first generation of illegal immigrants (I have seen this up close), and those who have learned how to game the system via disability or other "injuries at work". The real problem is that the underclass knows how to use the system - don't need to work....system will take care of me! The authors want to look at the wealthly as the problem, but the problem is the underclass......"yes I am blaming the victim". I grew up poor, single parent household, joined the army and put myself through college and grad schoold and make almost more money than I can spend. I do however keep in touch with my high school peers, and they keep trying to "work the welfare system".
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General ignorance and weak journalism accounts for most of this phenomenon, combined with the peculiarly American phenomenon that lets poor and middle-class people think that they are somehow one day away from being rich themselves.
The press needs to print more detailed articles showing the true total tax burden on the rich versus the non-rich; this will help illustrate the successful 30-year war the rich have waged against the poor.
The press needs to print more detailed articles showing the true total tax burden on the rich versus the non-rich; this will help illustrate the successful 30-year war the rich have waged against the poor.
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You fail to mention that while people may not envy the rich they do envy those with much smaller advantages relative to them. A neighbor with a larger car. Or, more tellingly at this moment, people with better pensions and health care plans. Indeed, public employees appear to be the main target of envy and anger right now, at a time when bankers may be pocketing hundreds of millions.
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Ordinary Americans care.
But the elites who run this country (including NY Times editors) shamefully seem far more interested in the needs of Muslims and illegal migrants than the needs of the great American middle class.
But the elites who run this country (including NY Times editors) shamefully seem far more interested in the needs of Muslims and illegal migrants than the needs of the great American middle class.
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Fanning the flames of class and race warfare is deplorable. As a middle-class professional, I envy my less well off friends who've learned to live without all the striving and materialism. If someone wants to make a billion dollars and then at the age of 80 create a foundation that ends up helping far more people than any government agency ever has, so be it.
Also, you asked a loaded question. "How *should* wealth be distributed" assumes that wealth should be distributed and its just a matter of how.
Also, you asked a loaded question. "How *should* wealth be distributed" assumes that wealth should be distributed and its just a matter of how.
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Every time academics discuss this issue they seem to ignore the role of feminism in the redistribution of wealth in this country. Women have made enormous income strides in the last 40 years. When doctors marry doctors and lawyers marry lawyers you effectively double one family's income. And now the secretary and the nurse, who in my mother's generation had a chance to improve their lot through marriage, don't.
When marriage prospects were based on looks and personality, women from poorer families had a better shot at upward mobility. But now the upper classes guarantee their daughters' financial success because they can afford to pay for their college and graduate educations.
Reducing disparities in education is another academic pipe dream. The upper classes teach their children lessens very early in life, lessons that no government funded 'head start' would dare to parrot. Why? Because you would have to start defining 'class', a very touchy subject in America, and start explaining why the values of one class leads to wealth, and the values of other classes lead to zero net worth.
When marriage prospects were based on looks and personality, women from poorer families had a better shot at upward mobility. But now the upper classes guarantee their daughters' financial success because they can afford to pay for their college and graduate educations.
Reducing disparities in education is another academic pipe dream. The upper classes teach their children lessens very early in life, lessons that no government funded 'head start' would dare to parrot. Why? Because you would have to start defining 'class', a very touchy subject in America, and start explaining why the values of one class leads to wealth, and the values of other classes lead to zero net worth.
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As the American talent for self-deception and mindless consumerism continues unabated, it's useful to look at the lifestyles of the still vibrant European middle class. Much lower personal debt, along with less 'stuff'. Percentages of home and car ownership are lower, but their quality of life, longevity and happiness are higher. Possibly because they watch less TV and are more inclined to purchase fewer but higher quality items that LAST longer. No one fills up more landfills with useless consumption than Americans.
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None of the debaters has mentioned a factor that I think plays a role in people's seeming indifference to wealth inequality and their aversion to income redistribution: racism. Yes, the American wealth gap cuts across racial, gender, geographical and other lines. But those at the bottom of the heap are disproportionately African-American and Hispanic. In the bad old days of explicit racism, people of color in this demographic used to be called "shiftless" and hence "undeserving" of support. These days, the Tea Party rhetoric is a bit more subtle. It's "Stop taxing Us (subtext: to pay for things that We don't need)". Or am I being too cynical?
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Most of the money the rich accumulate is hoarded- it is taken out of circulation as a hedge bet against our economy failing as most rich people do not truly believe in our economic system. Our economy only works when money is moving, I pay you, you pay someone else etc. Obviously, our economy has stopped working. Money is bottled up at the top- the only successful leader will be one that takes a plunger to the clog. The verdict is in- Reaganism and Bushism has failed. Not that I want to sound partisan- the fault is with Jann Wenner, Howard Stern or any other Hamptons quiche-eating liberal as much as it is with the Bushes, the Koch Brothers etc. It's time these people came out of their guarded fortresses and worked for the good of mankind with the short time they have left.
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Why aren't Americans more upset about the increasing concentration of wealth?
Good question.
I'll venture to offer a few reasons.
First and foremost, I'm not sure "most" Americans are aware that the top 1% has been hoovering up an ever greater share of the nation's wealth for the last 30 years--in no small part I suspect because a width swath of the news media is owned by large corporations which are in large part (85% of all the publicly traded stock in the U.S. is controlled by the top 1%) and hasn't reported it
Secondly, width swath of Americans--despite all evidence to the contrary--remains convinced that somehow, someday, they'll be rich too.
Last, but not least, there has been an aggressive effort by the apologists for the rich to blur the perceptual line between the rich and the rest of us--in order to make most people wonder--when somebody says "We need to tax the rich"--do they mean me?
Three last points:
Up until the 1980's--bans defined "millionaires" as people who had more than a million dollars in assets. No more--if you walk into J.P. Morgan--unless you're making at least a million dollars every year, you're not a millionaire.
The gap between the well-off--people making more than $150,000 and less than $300,000 and the really rich--see above--has grown so wide, it would be easier to jump across the Grand Canyon on a child's trike than to bridge the gap.
Last--but not least--there is no economic, social or moral justification for billionaires A one time wealth tax of 50% on all fortunes over $10 million in the US would raise enough revenue to halve the national debt
Good question.
I'll venture to offer a few reasons.
First and foremost, I'm not sure "most" Americans are aware that the top 1% has been hoovering up an ever greater share of the nation's wealth for the last 30 years--in no small part I suspect because a width swath of the news media is owned by large corporations which are in large part (85% of all the publicly traded stock in the U.S. is controlled by the top 1%) and hasn't reported it
Secondly, width swath of Americans--despite all evidence to the contrary--remains convinced that somehow, someday, they'll be rich too.
Last, but not least, there has been an aggressive effort by the apologists for the rich to blur the perceptual line between the rich and the rest of us--in order to make most people wonder--when somebody says "We need to tax the rich"--do they mean me?
Three last points:
Up until the 1980's--bans defined "millionaires" as people who had more than a million dollars in assets. No more--if you walk into J.P. Morgan--unless you're making at least a million dollars every year, you're not a millionaire.
The gap between the well-off--people making more than $150,000 and less than $300,000 and the really rich--see above--has grown so wide, it would be easier to jump across the Grand Canyon on a child's trike than to bridge the gap.
Last--but not least--there is no economic, social or moral justification for billionaires A one time wealth tax of 50% on all fortunes over $10 million in the US would raise enough revenue to halve the national debt
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Well, we're talking ignorance and lack of education here. Together with ferocious disinformation machine by Fox News and the like aimed at convincing people to vote against their financial interests.
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Redistribution is a stupid way to reduce inequality, because it is dishonest. Robbing Paul to pay Peter makes inequality persist. The honest way to reduce inequality is to create jobs that allow Peter to earn his income. Redistribution is a gimmick that does not solve the problem.
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Great stats. I am not sure I agree with the oft speculated reason why the poor vote against their own best interests which would be more socialism and less leave it alone. I think it is simply because the unscrupulous right wing (and I dont include a suprising number of happy to pay higher tax billionaires living right here in Silicon Valley) has most to lose by leveling the playing field and so spend a huge amount of money and effort, eg Fox, indoctrinating the masses and confusing them then providing simple slogans like small government or anti-abortion of whatever that they can latch onto.
Its just propaganda.
Its just propaganda.
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And where does this belief in social mobility come from if it doesn't exist?
We are told true life fairy-tales of those who moved from rags to riches without being told how rare that actually is. The myth is furthered by game shows and lottery ticket winners.
The battle of American has always been about the rich and the poor, whether the rich has been George Bush or George III.
The true question is what motivates the top 20% into believing that they deserve so much more for contributing so little.
What is most upsetting is when computing their wealth, they are richer than the pharoahs of old. With my paycheck, it would take me 20 years to earn a million dollars. It would take me 200 to earn 10 million, and 20,000 years to take home what some on Wall Street earned in one year ($1 billion). There is no way anyone would every convince me that a trader contributes enough in one year to ballance that of 20,000 police officers, teachers, nurses, or firefighters.
We are told true life fairy-tales of those who moved from rags to riches without being told how rare that actually is. The myth is furthered by game shows and lottery ticket winners.
The battle of American has always been about the rich and the poor, whether the rich has been George Bush or George III.
The true question is what motivates the top 20% into believing that they deserve so much more for contributing so little.
What is most upsetting is when computing their wealth, they are richer than the pharoahs of old. With my paycheck, it would take me 20 years to earn a million dollars. It would take me 200 to earn 10 million, and 20,000 years to take home what some on Wall Street earned in one year ($1 billion). There is no way anyone would every convince me that a trader contributes enough in one year to ballance that of 20,000 police officers, teachers, nurses, or firefighters.
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In some ways richer people being around benefits me. I drive a Honda and never expect to own a Mercedes or BMW. But Mercedes has pioneered many safety improvements in cars which over time have migrated down to more modestly priced cars such as Hondas. So the rich people who have bought luxury cars have supported mainly Mercedes and BMW who by charging high prices can afford to pioneer safety technology. Likewise, I have usually waited for various consumer products to come down in price before buying and let the rich pay for most of their development.
It's hard for me to feel deprived driving a 2008 Honda Accord even if I go to Malibu and am amazed at how common late model high end German luxury cars are. Likewise, it's hard for me to feel deprived watching my $500 42 inch flat screen plasma tv even if I kept my old big cube 32" RCA tv until the price of flat screen tvs really came down. To the extent that the rich finance the development of "cutting edge" desireable products that then become cheaper and more available, the rich benefit me so the inequality is not annoying at all.
It's hard for me to feel deprived driving a 2008 Honda Accord even if I go to Malibu and am amazed at how common late model high end German luxury cars are. Likewise, it's hard for me to feel deprived watching my $500 42 inch flat screen plasma tv even if I kept my old big cube 32" RCA tv until the price of flat screen tvs really came down. To the extent that the rich finance the development of "cutting edge" desireable products that then become cheaper and more available, the rich benefit me so the inequality is not annoying at all.
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