On the 2012 campaign trail, Mitt Romney and Paul Ryan (R-WI) often attacked President Obama for advocating “redistribution.” The argument dovetailed nicely into the “makers vs. takers” construct advanced by the Romney-Ryan ticket. The government, according to Romney-Ryan, needed to be scaled down, so as to liberate America’s “makers” (or “job creators”) to grow their businesses and employ more Americans. This argument stood in stark contrast to the caricature of President Obama, who, according to Romney-Ryan, clung to the failed ideology that America’s wealth should be redistributed to stimulate the moribund economy.
“He [Obama] really believes in what I’ll call a government-centered society. I know there are some who believe that if you simply take from some and give to others then we’ll all be better off. It’s known as redistribution. It’s never been a characteristic of America,” Romney told supporters at a fundraiser in September. “I believe the way to lift people and help people have higher incomes is not to take from some and give to others but to create wealth for all.”
The argument that was advanced by the Romney-Ryan ticket, and is still advanced by many politicians today, is problematic for many reasons. But one of the primary problems with it is that it demonstrates a profound ignorance – perhaps it is better stated as indifference – to how pandemic inequality in America really is.
Politicians can freely ignore the inequality in America, however, because the American people fail to truly grasp how unequal our society has become. That is why it was refreshing to see a 2011 study on wealth inequality by Dan Ariely and Michael Norton go viral on YouTube last week.
The study, called “Building a Better America — One Wealth Quintile at a Time,” asked 5,522 Americans “to construct distributions of wealth they deem just.” As part of the respondents first task, they were presented with three unlabeled pie charts of wealth distribution and asked to choose which nation they would rather join. Respondents were given the following instructions: “In considering this question, imagine that if you joined this nation, you would be randomly assigned to a place in the distribution, so you could end up anywhere in this distribution, from the very richest to the very poorest.” Here are the results from this part of the study:
The results were striking. As can be seen in the figure on the right, 47% preferred the “Swedish” distribution, 43% of Americans preferred an equal distribution (socialism!), and only 10% preferred the distribution for the United States. When pitted against one another, 92% of Americans preferred the “Swedish” distribution to the United States, 77% of Americans preferred the equal distribution to the United States, and there was only slight preference for the “Swedish” distribution relative to the equal distribution. Preference for the “Swedish” distribution over the United States was robust across gender, preferred candidate in the 2004 election (Bush or Kerry), and income.
There are a few things to note about these results. First, Ariely and Norton asked respondents to imagine they were “randomly assigned to a place in the distribution,” implying that effort plays no role in wealth accumulation. This is potentially problematic, but keep in mind that, in a sense, we were all already “randomly assigned to a place in the distribution” by virtue of being born into the families we were born into. A person’s initial socioeconomic status (as determined by their family) does play a significant role in determining future wealth. Second, Ariely and Norton’s contention that “Americans prefer Sweden” is rhetorically misleading. Ariely and Norton used Sweden’s income distribution rather than wealth distribution to provide “a clearer contrast.” But while it may not be strictly true that “Americans prefer Sweden” in the way they imply, their point remains valid; that is, Americans prefer some inequality to perfect inequality, but clearly prefer a nation with a distribution much more equal than that of the United States.
The second part of the study has gotten much more attention than the first. As part of the respondents second task, Ariely and Norton assessed Americans’ estimates of the actual distribution of wealth and their preferences for the ideal distribution of wealth in the United States. Respondents were asked to indicate what percent of the wealth was owned by each of the five quintiles in the United States. Here are the results from this part of the study:
Again, the results were striking. “Actual” represents the actual distribution of wealth in the United States. “Estimated” is what people think the distribution of wealth is. And “ideal” represents what percent of wealth respondents thought each of the quintiles ideally should hold.
According to Ariely and Norton, their results “demonstrate two clear messages.” First, Americans vastly underestimate the actual level of wealth inequality in the United States. Americans believe, for example, that the wealthiest 20% hold about 59% of the wealth. The actual number is closer to 84%. Second, Americans’ ideal wealth distribution is far more equitable than even their erroneously low estimates. In line with the previous example, Americans believe that the wealthiest 20% should own just 32% of the wealth. Again, the actual number is closer to 84%. Furthermore, these beliefs were robust across gender, political ideology, and level of income.
As Ezra Klein pointed out, Ariely and Norton’s research makes it abundantly clear that wealth inequality is “worse than Americans want it to be” and “much worse than they think it is.” And while economists do not know what kind of wealth distribution maximizes human welfare, there is significant reason to be concerned. Because of their small percentage of share of total wealth, the entire bottom 40% of America are not even visible in the actual distribution of wealth in the United States. America’s elite, it would seem, has nothing to lose but its gains. The rest of America, however, has little left to lose.