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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

How to Think About Misperceptions Regarding the Distribution of Wealth in the U.S.



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To my great amusement, a number of left-of-center commentators think it is profoundly significant that Americans don’t have a very accurate sense of the actual wealth distribution in the United States. New research by Michael Norton and Daniel Ariely has inspired the latest round of reflections on this unsurprising fact:

People know we’re living in a time of growing income inequality, Krugman told me, but “the ordinary person is not really aware of how big it is.” The ignorance hypothesis gets a strong assist from a new paper for the journal Perspectives on Psychological Science: ”Building a Better America—One Wealth Quintile at a Time.” The authors are Michael I. Norton, a psychologist who teaches at Harvard Business School, and Dan Ariely, a behavioral economist (and blogger) at Duke. Norton and Ariely focus on the distribution of wealth, which is even more top-heavy than the distribution of income. The richest 1 percent account for 35 percent of the nation’s net worth; subtract housing, and their share rises to 43 percent. The richest 20 percent (or “top quintile”) account for 85 percent; subtract housing and their share rises to 93 percent. But when Norton and Ariely surveyed a group whose incomes, voting patterns, and geographic distribution approximated that of the U.S. population, the respondents guessed that the top quintile accounted for only 59 percent of the nation’s wealth.

As Andrew Gelman observed a few years back, Americans also systematically misperceive the ethnoracial composition of the U.S. population. And this is just the tip of the iceberg. One assumes that this ignorance is a form of rational public ignorance. One could know the precise wealth distribution of the U.S., but it’s not as useful as knowing things that directly pertain to one’s work, etc. 

The most appealing interpretation of public ignorance regarding the wealth distribution for egalitarians is that Americans would be outraged if they knew the real numbers. But another interpretation the wealth distribution doesn’t give us a very reliable guide to lived experience. The author I quoted above observes the following:

Norton and Ariely also asked respondents what they thought theideal distribution of wealth should be, and found, again, little difference among income groups, or between Bush voters and Kerry voters. Most favored a wealth distribution resembling that in … Sweden! But when you examine Norton and Ariely’s method, that particular finding gets a little shaky. They showed respondents three unlabeled pie charts. One depicted utopian equality, with wealth distributed equally among five groups. The second depicted the United States, with wealth distributed very unequally among five groups (one of which gobbled up 85 percent—Norton and Ariely put it at 84 percent, but let’s not quibble). The third depicted Sweden, where the top quintile accounts for 35 percent of the nation’s wealth. Neither the Swedish pie chart nor the U.S. pie chart was identified by nation. Norton and Ariely were astonished that 47 percent of respondents—remember these were all Americans—chose the pie chart depicting Sweden. But surely most survey-takers, when presented with two extreme options and one that lies in the middle, will instinctively gravitate, like Goldilocks, toward the middle option. More surprising to me was that second place went to Utopia (43 percent). Only 10 percent voted for the pie chart depicting the country the respondents actually live in.

But what if the respondents were then told that the bottom tenth of the income distribution in Sweden and the U.S. have comparable living standards, while the top 90 percent in the U.S. is far more affluent? Or, to be more generous to the Swedes, what if respondents were told that the bottom tenth of the distribution in Sweden has somewhat better public services and comparable living standards while the top 90 percent in the U.S. is far more affluent? (“Living standards” and “wealth” aren’t identical, to be sure. I’d submit that consumption and disposable income matter more to most than wealth per se, though of course wealth concentration has implications for intergenerational mobility and, to some extent, the distribution of political influence and power.) I sense that this might lead at least some of the respondents to conclude that the U.S. wealth distribution is kind of okay — if it’s compatible with a higher level of consumption for the vast majority, why should one care?

P.S. I edited the last paragraph for clarity’s sake. (You’re welcome, clarity.)



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