09/26/10 Stockholm, Sweden – New research on perceptions of wealth in the US — from Michael Norton and Dan Ariely at Harvard Business School and Duke University, respectively – is worth a closer look. At first blush, it would seem that 92 percent of respondents rather live in a quasi-socialist economy more resembling Sweden than the US. The explanation they offer is that the gap between the rich and the poor has become far greater than surveyed Americans both think it is and would like it to be. Here are the findings, according to The Raw Story:
“…the study also found that respondents preferred Sweden’s model over a model of perfect income equality for everyone, ‘suggesting that Americans prefer some inequality to perfect equality, but not to the degree currently present in the United States,’ the authors state. Recent analyses have shown that income inequality in the US has grown steadily for the past three decades and reached its highest level on record, exceeding even the large disparities seen in the 1920s, before the Great Depression. Norton and Ariely estimate that the one percent wealthiest Americans hold nearly 50 percent of the country’s wealth, while the richest 20 percent hold 84 percent of the wealth.
“But in their study, the authors found Americans generally underestimate the income disparity. When asked to estimate, respondents on average estimated that the top 20 percent have 59 percent of the wealth (as opposed to the real number, 84 percent). And when asked to choose how much the top 20 percent should have, on average respondents said 32 percent — a number similar to the wealth distribution seen in Sweden.
“‘What is most striking’ about the results, argue the authors, is that they show ‘more consensus than disagreement among … different demographic groups. All groups – even the wealthiest respondents – desired a more equal distribution of wealth than what they estimated the current United States level to be, while all groups also desired some inequality – even the poorest respondents.’”
The main issue appears to be that people in the US, rich and poor alike, are not fully aware of how pronounced income inequality has become. It’s probably a stretch to say that Americans want a system more like Swedes simply because the wealth distribution in Sweden is more similar to what respondents expect in the US.
That said, it’s no surprise the average citizen doesn’t estimate offhand that the wealthiest 20 percent of Americans hold 84 percent of the nation’s wealth. It’s a huge chunk of prosperity in a very few hands… and it shows how over recent decades the US has become quite the lopsided nation, much more so than most people expect. You can read the details in The Raw Story’s coverage of the new study on how most Americans want wealth distribution similar to Sweden.
Best,
Rocky Vega,
The Daily Reckoning
Rocky Vega
Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let’s Go Publications, Harvard Student Agencies, and The Harvard Advocate.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
Rocky, i’m having trouble understanding this article from your selective quotes. Is it income or wealth inequality you refer to? For the record these are different.
My math is probably all wrong but according to the latest numbers there are a little over 300 million people in the USA. 20% equals about 60 million people. I’m having trouble with the definition of wealth, but using GNP of about $12 trillion would give these 60 million people about $10 trillion at 84% to share or about $167,916 each (not a big deal). This leaves the other 240 million of us to share about $2.5 trillion or $10,500 each. If we all got an equal slice of the take it would be about $40,000 each. The wealth share of the top 5% (15 million people) would probably be quite a different picture.
By the nature and structure of American opportunity there will always be a lack of perceived equality. In a country such as ours where hard work and determination can bring you prosperity and wealth, there will always be those to whom the drive is too overwhelming. All great societies provide for those who cannot legitimately provide for themselves. It was once called help to get back on your feet. Now it is called entitlement, a profession, a way life. Not asking for help, rather demanding equality from those hard working contributors to society. Perhaps those top 20% should simply take their wealth and walk away. How quickly America would fall.
Unfortunately, this study is a complete sham.
It asked a couple of questions, in the first one they got to choose between three unlabeled income distributions, where one was a perfectly even distribution (obvious even when unlabeled), one was the US wealth distribution, and a third which was complete fabrication made up to be an “alternative” in the middle. It was supposedly Swedens wealth distribution.
Well, the “Sweden” option was a lie. That’s not Swedens wealth distribution at all. It’s Swedens *income* distribution, they claim (but even that is not true, according to the Swedish bureau of statistics, where in fact the lowest 20% has 4% of the total income, not the 11% claimed on the research). So the third option is a complete fabrication, made to show a big (but completely unrealistic) option to the US distribution.
Secondly, show them three options, where one os obviously extreme (complete equality) one looks to be quite extreme (US) and one in the middle. What will you choose, when you don’t really know what you are asked? Right. The one in the middle. That question is complete bogus.
Then they got asked what they though the US income distribution was, and then of course put the numbers somewhere in the middle of the option they choose (the unrealistic fabricated option) and the one they thought was extreme (US), proving that they didn’t know what they were being asked. And then they asked what they wanted it to be, and then wanted in average a slightly more equal distribution.
What did this survey show? It shows that the maths involved are unintuitive. Most people in the lower 20% doesn’t save money. They will have very little of the wealth, because even if they have money over at the end of the month they spend it. That’s normal and expected, and every country will work like that, always.
They should first of all have concentrated solely on income distribution, and they shouldn’t have used percentage of the total, because that is completely misleading. A better question is “How much more should the average person in the top twenty earn compared to the person in the bottom twenty?” Then they would have realized that the so called “preferred” distribution means that a guy who have five years on Harvard and 20 years of experience in leading a company only earns twice as much as the guy who skipped high-school and delivers the mail. It’s not a functional distribution.
But you don’t realize that when you see those pie charts, unless you have actually done the maths.
It also shows that they *think* (but they don’t know) that the US is more unequal than they would like. That’s it. It doesn’t show any of the things they claim it shows, much less that Americans prefer Swedens income distribution. Maybe they do, maybe they don’t. But this research doesn’t show it.