Arts, Culture & Humanities

Wealth and an American paradox

Claude Fischer

The liberal blogosphere is currently atwitter over a new study produced by Michael Norton and Dan Ariely (pdf) showing how much Americans underestimate economic inequality in America. ScaleA 2005 on-line survey asked thousands of respondents to estimate what proportion of all the total wealth in the country was owned by the richest one-fifth of Americans, the next richest one-fifth and so on. On average, the respondents guessed that the richest one-fifth owned about three-fifths of the nation’s wealth; in reality the richest one-fifth own over four-fifths of it. The survey also asked respondents for their ideal distribution; on average, they preferred a society in which the richest one-fifth owned about one-third of the national wealth.

(Although dramatic, these findings are not surprising. Americans have been shown, for example, to underestimate how wide the gaps are in earnings between jobs. And Americans generally cannot provide accurate statistical descriptions of America. For example, they tend to guess that minorities such as blacks and Jews form substantially larger proportions of the population than they really do.)

According to the new study, then, Americans not only think that wealth is much more equally distributed than it really is, they want an America that is much more equal than they imagine it is today. And yet, Americans are notably opposed to the government doing anything to move the distribution of wealth in that direction. Why the contradiction?

America the Unequal

The United States has the greatest inequality of income and wealth among affluent western nations. And that inequality has been increasing pretty steadily since about 1970 — more so than in other western nations – with a slowdown in the late 1990s and a few short-term fluctuations in wealth inequality due to swings in the stock market. This is pretty much understood by serious scholars (with a few outlying voices in dissent). It looks like Americans have been sensing rising inequality, too.

For example, Gallup has periodically asked Americans whether they thought of the nation as divided between “haves” and “have-nots” [Note 1]. The blue line in the figure below shows the percentages between 1988 and 2008 who said yes, America was divided. (It is plausible that the percentage would be yet higher now, two years after the last point.) Then, Gallup asked which category respondents would place themselves in [Note 2]. The red line shows an increase in the percentage who said they thought of themselves as “have-nots.”

Haves and have nots

Hands Off

And yet, Americans, studies have shown, are more opposed to having the government do anything about this inequality than are citizens of other western nations. (And, of course, the United States in fact does less than other western nations to address inequality.) The Gallup Poll has periodically asked its interviewees whether they think the distribution of wealth is “fair” or whether it should be “more evenly distributed” [Note 3]. The balance between those answers hardly changed – about 32% said “fair” – between 1984 and 2009, even as inequality widened.

Surveys asking whether the government should do something major (on the order of what European nations do) show continuing opposition from many, if not most, Americans. For example, the General Social Survey has asked questions about what the government should do about unemployment. The figure below shows the trends in answers during the recent years of growing inequality. The top, blue line, tracks support for whether the government should sponsor job-creating projects (presumably like road-building) [Note 4]. It shows a moderate upswing, particularly in 2006. The lower, red line tracks the percentage who agree with the broader principle that the government should be responsible for guaranteeing everyone a job [Note 5]: No change.

Public opinion re government jobs

Explaining

So, it appears that Americans have noticed growing inequality, but they haven’t really changed their general opposition to the government doing anything dramatically different about it (beyond perhaps financing “shovel-ready” projects). Why?

One implication of the Norton-Ariely paper cited above is that, were most Americans to appreciate how unequal their society is and how much greater that inequality is than their ideal, their political views would shift.

Perhaps, but perhaps not. The other evidence suggests that increasingly many Americans have been aware of growing inequality, but that has not changed their resistance to explicit economic “leveling.”  Research on Americans’ hostility to the estate (the “death”) tax, for example,  shows that it is impervious to information, for example, that vanishingly few Americans ever pay that tax. (See Larry Bartels on this here.)

Versions of this paradox have perplexed social scientists for decades. (See also this earlier post.) Here are a handful of plausible explanations forwarded by scholars:

  • “Anti-statism.” Americans have been historically suspicious of and hostile to government (although they have accepted many pragmatic programs, like Medicare). Therefore, they may wish that inequality was much less than it is, but they will not empower the government to do something serious about it.
  • Opportunity, not outcome. Survey data show that many Americans generally do support government actions that widen opportunities for economic advancement, especially through education. Most Americans may believe, then, that in a society of equal opportunity, unequal outcomes can be reduced or at least tolerated. (Unfortunately, the belief that the U.S. is particularly open to upward mobility is empirically incorrect.)
  • Race trumps: In the U.S., issues of economic inequality have been tangled up with issues of race, because blacks have disproportionately been poor and the likeliest recipients of government assistance. Research suggests that this prospect leads whites to resist government action, even action that might benefit themselves.
  • Ideology of self-reliance: Americans have been historically committed to emphasizing individual independence and self-reliance; increased government action threatens to create dreaded “dependency.” In practice, Americans have comprised that ideology when conditions demanded – in the Great Depression, for example; or in accepting disaster relief. But these values make for deep resistance to any major new initiatives.
  • Constricted horizons: Some have argued that political discussions here are so narrowly bounded that Americans may see and resent great inequality but cannot really imagine that things could be (and are elsewhere) different. When, for example, the free-enterprise Obama health plan is seen by so many as an extreme, socialistic program, when our tax rates on the wealthy are described as confiscatory, or when Sweden is depicted as some sort of totalitarian state, it would seem that Americans are operating with blinders on.

The latest Norton-Ariely paper provides a vivid picture of just how unaware Americans are of how unequally distributed wealth has become in the United States. It still leaves us with the puzzle of why most Americans, even when they are aware of that imbalance, oppose major efforts to rebalance it.

NOTES: Question wording……..

[1] “Some people think of American society as divided into two groups — the “haves” and “have-nots,” while others think it’s incorrect to think of America that way. Do you, yourself, think of America as divided into haves and have-nots, or don’t you think of America that way?”
[2] If you had to choose, which of these groups are you in, the haves or the have-nots?
[3] Do you feel that the distribution of money and wealth in this country today is fair, or do you feel that the money and wealth in this country should be more evenly distributed among a larger percentage of the people?
[4] Here are some things the government might do for the economy. Circle one number for each action to show whether you are in favor of it or against it. d. Government financing of projects to create new jobs.
[5] On the whole, do you think it should or should not be the government’s responsibility to . . . a. Provide a job for everyone who wants one?

Cross-posted from Claude Fischer’s blog, Made in America: Notes on American life from American history.

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Comments to "Wealth and an American paradox":
    • Daniel

      Taxation is theft!

      Intellectuals are part of the liberal elite!

      Leave your tired GOP tropes at the door and try reckoning with the reality that the rich are working no harder today than they were 30 years ago. Why then are they making so much more after we adjust for inflation?

      Systematic deregulation of industry and the dismantling of the labor movement.

      Profits are easy to come by when you don’t have to worry about properly disposing of your waste or maintaining safe working conditions. When your workers have no bargaining power, why offer them health care or a pension or even a living wage. As long as profits increase, shareholders will keep your “compensation package” going up. And when they’re done they can take their dividends and go swap some mortgage-backed derivatives.

      Don’t worry…the corporations will take care of you when you defund the government.

      [Report abuse]

    • Peter

      This article is horrible. Why do we accept economic inequalities in America when we should demand that we all earn the same amount? Because there is nothing inherently wrong with somebody else making more money than the next person. This sub-par article assumes that the reader already accepts that government redistribution of wealth is a moral ideal. It is a horrible ideal. Taking from the wealthy who actually worked for and earned their money and giving it to those who do not is stealing.

      Many people know that they will not end up in the top 1/5 of America, and they are fine with it. Maybe that is why they don’t want the government stealing what does not belong to them. Furthermore, most Americans know that government “jobs” have historically proven to be grossly inefficient.

      [Report abuse]

    • Daniel Barnes

      Is it because the majority of people hope – irrationally – to end up in that top 1/5 themselves? They overestimate their own chances, much the same way as they overestimate their odds of winning when they buy a lottery ticket.

      [Report abuse]

    • Robert Rail

      If you are serious about redistributing wealth, tax wealth as opposed to income. Wealth is the equity in what you currently own, not what you are earning. You can be very wealthy even with a low income. If wealth becomes the basis for taxation, more people will rid themselves of it.

      America is the land of opportunity, but high income individuals should not be punished for the lack of income in others. That’s not wealth redistribution, it’s income redistribution. Income leveling is not going to happen in a free market society, but wealth redistribution can.

      [Report abuse]

    • fred

      2008 survey claims that $100,000 per year salaries are people living in the top 20% of wealthy Americans. these are professor salaries. Any american making $100,218 or more per year are in the top 20% earners of all of America. What does that say about professors and academia? They are the liberal elite.

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    • Avi Rosenzweig

      Early in the 1980 U.S. presidential election campaign, the National Lampoon ran an editorial cynically predicting Reagan’s victory, not because of Carter’s missteps or RNC dirty tricks, but because Americans knew that the Reagan camp’s rhetoric about looking out for everyone’s interest was mere pretense to paper over their actual aim of representing the privileged few AND that Americans want to think of themselves as part of that privileged few, whatever their actual circumstances. (Remember ‘Members Only’ sportswear?)
      The aphorism “Americans vote their aspirations rather than their interests” is accurate so far as it goes, but it obscures the comforting self-delusion that each of us is part of an elite of some kind.
      Remember also that all the children in Lake Wobegon are above average?
      When does this aspect of American temperament stop being endearing and start being pathetic? (I’d say about 3 generations back)

      [Report abuse]

    • Karyn Krause Amore

      I find Professor Fischer’s blog interesting, and also lacking in that he seems to create yet another “divide” by considering government intervention as the only method of re-distributing wealth. I very much believe we can bridge our self-created divides by educating ourselves, seeing reality for what it is (great divisions in distribution of wealth, ok, so what has the top 1/5 done differently to own 4/5ths of the pie? Can I model them and thus change my current place in the puzzle?), and deciding we will not be victims no matter what class, race or gender we were born into. It is a matter of choice and awareness whether we bury our heads in the sand or face the facts and do something about it. Government intervention or no, only we can take responsibility for where we derive our information and how we respond to what is. Karyn Krause Amore ’92

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    • Devin

      Can you please cite an example anywhere in the world or throughout history where individual actions, with no government oversight, have led to a broadly prosperous society? Without government, it’s anarchy…kill or be killed…to the victor go all the spoils. All empirical evidence points to the conclusion that there are no other options.

      I’m intrigued by your suggestion that we simply look to the most successful and model their behaviors, expecting the same results. Let’s try that…

      (richest person) Warren Buffett…made billions by finding companies that the markets mis-priced. If we all spent all our time analyzing financial statements, there would be no grossly mis-valued companies, and therefore nobody would be able to make the kind of money Buffet made. No lesson for the masses there. Buffett’s road to wealth is only an option because so few people took it.

      (2nd richest person) Bill Gates…made billions through a shrewd deal involving possibly (probably?) stolen software and subsequent monopolistic practices that have allowed his company to make billions by putting competing (and generally superior) products out of business. We can’t all succeed by monopolizing an industry. By definition, a monopoly only benefits a tiny minority, so again there’s no lesson here that will help the masses.

      (also among the 100 richest) Hedge fund managers…make billions by convincing people to let them place enormous wagers with their money and keep a cut of the winnings. Also not a broadly applicable strategy. If everybody manages hedge funds, they can’t raise money from anybody else and so can’t make enormous bets with other people’s money. Even if there was a source of money, to make enormous money requires long-shot bets…which by definition won’t pay off for most people.

      (also among the 100 richest) Heirs…make billions by inheriting the billions. I hope you can understand why this is not an approach other people can learn from.

      (further down the list, but still awfully rich) Very successful athletes, performers, and entertainers…make tens and hundreds of millions by applying a skill the millions of people will watch. Sure, this one does usually take a lot of hard work…but without starting with the fundamental ingredient of a natural talent that comes from winning the genetic lottery, this simply isn’t an option for most.

      (all over the list…) People with the moral flexibility to engage in behavior that is immoral, unethical, and/or generally socially destructive…make large sums of money for engaging in activities that most of us can’t do because we wouldn’t be able to sleep at night. From years of leading tours for wealthy clients, I’ve observed that one thing almost everybody who’s ever made a lot of money needs to have is this trait. Whether it’s sales people who regularly imbelish their products’ capabilities, lawyers defending companies they fully know to be in the wrong, executives making decisions to protect their own narrow self-interests at the expense of other parties, or any of countless other examples, there are simply to many examples (and too few counter-examples) of this phenomenon to believe that lack of integrity is not the most valuable skill needed to become a financial success. And, frankly, I don’t think this is a lesson that we want any more members of society to learn.

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    • Luisa Dolberry

      “haves” and “have-nots”? They are so many statistics dividing America, that I wonder if there is anything else left (undivided) :)
      Anyways, other than that, is an interesting material.

      [Report abuse]

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